**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC  20549**

**FORM N-CSR**

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANANGEMENT INVESTMENT COMPANY

 

**Investment Company Act file number 811-02679**

**DAVIS SERIES, INC.**

(Exact name of registrant as specified in charter)

2949 East Elvira Road, Suite 101

Tucson, AZ  85706

(Address of principal executive offices)

 

Thomas D. Tays

Davis Selected Advisers, L.P.

2949 East Elvira Road, Suite 101

Tucson, AZ  85706

(Name and address of agent for service)

 

Registrant’s telephone number, including area code: 520-806-7600

**Date of fiscal year end: December 31, 2005**

**Date of reporting period: December 31, 2005**

 

____________________

 

 

 

**ITEM 1.  REPORT TO STOCKHOLDERS**

 

 

 

 

**Table of Contents**

 

Shareholder Letter

2

 

 

Management's Discussion and Analysis:

 

Davis Opportunity Fund

3

Davis Government Bond Fund

4

Davis Financial Fund

5

Davis Appreciation & Income Fund

6

Davis Real Estate Fund

7

 

 

Fund Performance and Supplementary Information:

 

Davis Opportunity Fund

11

Davis Government Bond Fund

18

Davis Government Money Market Fund

23

Davis Financial Fund

24

Davis Appreciation & Income Fund

30

Davis Real Estate Fund

36

 

 

Schedule of Investments:

 

Davis Opportunity Fund

43

Davis Government Bond Fund

47

Davis Government Money Market Fund

49

Davis Financial Fund

52

Davis Appreciation & Income Fund

54

Davis Real Estate Fund

58

 

 

Statements of Assets and Liabilities

61

 

 

Statements of Operations

63

 

 

Statements of Changes in Net Assets

64

 

 

Notes to Financial Statements

66

 

 

Financial Highlights:

 

Davis Opportunity Fund

81

Davis Government Bond Fund

85

Davis Government Money Market Fund

89

Davis Financial Fund

90

Davis Appreciation & Income Fund

94

Davis Real Estate Fund

98

 

 

Report of Independent Registered Public Accounting Firm

102

 

 

Income Tax Information

103

 

 

Fund Information

104

 

 

Directors and Officers

105

 

 

1

 

 

 

**DAVIS SERIES, INC.**

2949 East Elvira Road, Suite 101

Tucson, Arizona 85706

 

Dear Fellow Shareholder,

 

As stewards of our customers’ savings, the management team and Directors of the Davis Funds recognize the importance of candid, thorough, and regular communication with our shareholders.  In our annual and semi-annual reports we include all of the required quantitative information such as audited financial statements, detailed footnotes, performance reports, fund holdings, and performance attribution. Also included is a list of positions opened and closed.

 

In addition, we produce a Research Report for certain funds, which is published semi-annually.  In this report, we give a more qualitative perspective on fund performance, discuss our thoughts on individual holdings, and share our investment outlook. You may obtain a copy of the current Research Report either on our website, www.davisfunds.com, or by calling 1-800-279-0279.

 

Sincerely,

 

Christopher C. Davis

President

 

February 3, 2006

 

 

2

 

 

 

**DAVIS SERIES, INC.**

2949 East Elvira Road, Suite 101

Tucson, Arizona 85706

**Management’s Discussion and Analysis**

 

**Market Environment**

 

During the year ended December 31, 2005, the stock market, as measured by the Standard & Poor’s 500® Index1, increased by 4.91%. U.S. economic activity, as measured by the inflation-adjusted gross domestic product (“GDP”), increased between 3.3% and 4.1% over each of the first three calendar quarters of the year, and increased by only 1.1% in the fourth quarter. Interest rates, as measured by the 10-year Treasury bond, began 2005 at about 4.2%, ranged as low as 4.0% and ended 2005 at about 4.4%. 

 

**Davis Opportunity Fund**

 

**Performance Overview**

 

Davis Opportunity Fund’s Class A shares delivered a total return on net asset value of 8.33% for the year ended December 31, 20052, compared with a return of 6.32% for the Dow Jones Wilshire 5000 Index1.The Board of Directors has approved a change in benchmarks to the Russell 3000 Index1, which returned 6.12% for the year ended December 31, 2005.  Experience has demonstrated the Davis Opportunity Fund does not often invest in companies with very small market capitalization.  Thus, the Board has determined that the Russell 3000 Index more closely approximates the companies which the Fund invests in.

 

Consumer discretionary companies represented the Fund’s largest sector investment and were among the most important contributors3 to the Fund’s performance over the year. This sector included both contributors to and detractors from performance. Sears4, and Office Depot (initially purchased in March 2005) were among the most important contributors to performance. 99 Cents Only Stores, AutoZone, and Lear (initially purchased in April 2005) were all among the most important detractors from performance.  The Fund no longer owns AutoZone and Sears.

 

The Fund made significant investments in diversified financial companies, and they were the most important contributors to performance with E*TRADE Financial (initially purchased in March 2005) and Groupe Bruxelles among the most important contributors to performance. Refco (initially purchased in August 2005) was among the most important detractors from performance. The Fund no longer owns Refco.

 

Transocean, an energy company, and Brown & Brown, an insurance company, were both among the most important contributors to performance. 

 

The Fund’s utility companies turned in a mixed performance with Sempra Energy among the most important contributors to performance and Calpine among the most important detractors from performance. The Fund no longer owns Calpine.

 

Industrial companies were among the most important detractors from performance. Tyco International and Robbins & Myers (initially purchased in February 2005) were among the Fund’s most important detractors from performance. 

 

Covad Communications Group, a telecommunication services company, was also among the most important detractors from performance. 

 

The Fund’s portfolio managers have identified a number of investment opportunities in foreign companies. The Fund ended the period with approximately 18% of its portfolio invested in foreign companies. As a group, foreign companies owned by the Fund out-performed the Russell 3000 Index.

 

3

 

 

 

**DAVIS SERIES, INC.**

2949 East Elvira Road, Suite 101

Tucson, Arizona 85706

**Management’s Discussion and Analysis – (Continued)**

 

**Davis Government Bond Fund**

 

**Performance Overview**

 

Davis Government Bond Fund’s Class A shares delivered a total return on net asset value of 0.98% for the year ended December 31, 20052, compared with a return of 1.74% for the Citigroup U.S. Treasury/Agency 1-3 Year Index1. The Fund’s investment strategy, under normal circumstances, is to invest exclusively in U.S. Government securities and repurchase agreements collateralized by U.S. Government securities with a weighted average maturity of three years or less. 

 

The Board of Directors has changed Davis Government Bond Fund’s benchmark index from the Lehman Brothers Intermediate Term U.S. Treasury Securities Index1 to the Citigroup U.S. Treasury/Agency 1-3 Year Index.  Because the Fund seeks to maintain a weighted average maturity of three years or less, the Board has determined that the shorter term Citigroup U.S. Treasury/Agency 1-3 Year Index is more appropriate.

 

The Fund benefited by maintaining a slightly shorter weighted average maturity over the year. The Fund increased its returns by not owning U.S. Treasury securities and by owning mortgage-backed securities. 

 

Effective February 1, 2005, Davis Government Bond Fund modified its investment strategy to maintain a weighted average maturity of three years or less.  Previously, the Fund sought to maintain a weighted average maturity of between three and ten years. While no fund can provide a guarantee against losses, we believe this change will better meet the needs of existing shareholders. The Fund will continue to seek current income by investing exclusively in U.S. Government securities and repurchase agreements collateralized by U.S. Government securities. Also, effective February 1, 2005, Davis Advisors voluntarily reduced the management fee it charges the Fund from 0.50% to 0.30% of average annual net assets.  

 

 

 

4

 

 

 

**DAVIS SERIES, INC.**

2949 East Elvira Road, Suite 101

Tucson, Arizona 85706

**Management’s Discussion and Analysis – (Continued)**

 

**Davis Financial Fund**

 

**Performance Overview**

 

Davis Financial Fund’s Class A shares earned 8.03% on net asset value for the year ended December 31, 20052, compared with its benchmark the Standard & Poor’s 500® Index1, which returned 4.91%. 

 

Financial services companies as a whole turned in a stronger performance than the S&P 500® Index. The specific financial services companies which the Fund owned out-performed the majority of financial services companies in the Index. 

 

The Fund’s largest holdings were in insurance companies. Overall, the Fund’s insurance company holdings out-performed the S&P 500® Index and were the most important contributors3 to the Fund’s performance. Progressive4, Loews, Transatlantic Holdings, and American International Group were among the most important contributors to performance. Markel, Cincinnati Financial, Berkshire Hathaway, and FPIC Insurance Group were among the most important detractors from performance. The Fund no longer owns Cincinnati Financial.

 

The Fund’s diversified financial holdings out-performed the S&P 500® Index and were important contributors to performance. Moody’s, American Express, and First Marblehead (initially purchased in September 2005) were among the most important contributors to performance. Citigroup was among the most important detractors from performance. The Fund no longer owns Citigroup.

 

The Fund’s bank holdings out-performed the S&P 500® Index. Golden West Financial was among the most important contributors to performance. Fifth Third Bancorp was among the most important detractors from performance.  The Fund no longer owns Fifth Third Bancorp.

 

Among the Fund’s non-financial holdings, Altria Group, a food beverage, and tobacco company, and D&B Corp., a commercial services and supplies company, were among the most important contributors to performance, while Tyco International, a capital goods company, and H&R Block, a consumer services company, were among the most important detractors from performance. 

 

 

 

5

 

 

 

**DAVIS SERIES, INC.**

2949 East Elvira Road, Suite 101

Tucson, Arizona 85706

**Management’s Discussion and Analysis – (Continued)**

 

**Davis Appreciation & Income Fund**

 

**Performance Overview**

 

Davis Appreciation & Income Fund’s Class A shares earned 6.29% on net asset value for the year ended December 31, 20052, compared with its benchmark the Standard & Poor’s 500® Index1, which returned 4.91%. 

 

The Fund’s investment strategy is to attempt to use stocks, bonds, and convertible securities to structure a portfolio which will participate in at least 80% of the increase in the S&P 500® Index during market increases and not decline by more than 50% of the decrease in the Index during market declines. There can be no assurance that the Fund will actually perform in line with our strategy because there can be no assurance that the securities the Fund purchases will increase in value when the Index increases in value, or that they will provide downside protection when the Index declines in value. 

 

The Fund continues to hold the majority of its assets in convertible bonds, and these securities performed well, increasing almost as much as the S&P 500® Index. Convertible bonds, contributing3 to performance, included Lehman Brothers Holdings4, which is convertible into Devon Energy, an energy company, and GTECH Holdings, a consumer services company. Convertible bonds detracting from performance included Valeant Pharmaceuticals, a pharmaceutical and biotechnology company, and Masco, a capital goods company.  

 

The Fund held a significant portion of its assets in common stock. The Fund’s common stock holdings performed well, and were the primary reason that the Fund’s performance exceeded that of the S&P 500®Index. Stock holdings contributing to performance included J.C. Penney, a department store company, and two real estate companies, General Growth Properties, and SL Green Realty. Stock holdings detracting from performance included Vornado Realty Trust, a real estate company, and Masco, a capital goods company. The Fund no longer owns Vornado Realty Trust.

 

Among the Fund’s convertible preferred stock holdings, HSBC Finance, a commercial banking company, was among the most important detractors from performance.

 

As of September 1, 2005, Keith Sabol, CFA, joined Andrew Davis as co-portfolio manager for Davis Appreciation & Income Fund. 

 

6

 

 

 

**DAVIS SERIES, INC.**

2949 East Elvira Road, Suite 101

Tucson, Arizona 85706

**Management’s Discussion and Analysis – (Continued)**

 

**Davis Real Estate Fund**

 

**Performance Overview**

 

Davis Real Estate Fund’s Class A shares delivered a total return on net asset value of 12.76% for the year ended December 31, 20052, compared with a return of 14.06% for the Dow Jones Wilshire Real Estate Securities Index1. Real Estate companies as a whole did well, as reflected by the fact that the Dow Jones Wilshire Real Estate Securities Index out-performed the Standard & Poor’s 500® Index by a significant margin. 

 

Office property REITs represented the Fund’s largest sector investment, and were the most important contributors3 to performance over the year. The specific office property REITs that the Fund owned out-performed the office property REITs included in the Dow Jones Wilshire Real Estate Securities Index. Kilroy Realty4, SL**Green Realty, Corporate Office Properties, Arden Realty, and Boston Properties were among the most important contributors to performance. Brandywine Realty and Parkway Properties were among the most important detractors from performance. The Fund no longer owns Arden Realty, Brandywine Realty, and Parkway Properties.

 

The sectors detracting the most from performance were forestry REITs and hotel & lodging companies. Plum Creek Timber, a forestry REIT, and Starwood Hotels & Resorts, a hotel & lodging company, were among the most important detractors from performance.  The Fund no longer owns Plum Creek Timber and Starwood Hotels & Resorts.

 

Regional mall REITs turned in a mixed performance, with General Growth Properties among the most important contributors to performance. Mills Corp. and Pennsylvania REIT (initially purchased in August 2005) were among the most important detractors from performance. 

 

Real Estate operations and development companies also turned in a mixed performance, with Forest City among the most important contributors to performance and Liberty International among the most important detractors from performance. 

 

Centerpoint Properties, a warehouse & industrial REIT, was among the most important contributors to performance and iStar Financial, a diversified REIT, was among the most important detractors from performance.  The fund no longer owns iStar Financial.

 

–––––––––––––––––––––––––––––––––––––––-––––––––––––––––––––––––––––––-

 

This Annual Report is authorized for use by existing shareholders. Prospective shareholders must receive a current Davis Series prospectus, which contains more information about investment strategies, risks, charges, and expenses. Please read the prospectus carefully before investing or sending money.

 

Davis Opportunity Fund’s investment objective is long-term growth of capital. There can be no assurance that the Fund will achieve its objective. The primary risks of an investment in Davis Opportunity Fund are: (1) market risk, (2) company risk, (3) small and medium capitalization risk, (4) foreign country risk, (5) headline risk, and (6) selection risk.  See the prospectus for a full description of each risk.

 

7

 

 

 

**DAVIS SERIES, INC.**

2949 East Elvira Road, Suite 101

Tucson, Arizona 85706

**Management’s Discussion and Analysis – (Continued)**

 

Davis Government Bond Fund’s investment objective is current income. There can be no assurance that the Fund will achieve its objective. The primary risk of an investment in Davis Government Bond Fund is interest rate risk, consisting of: (1) price volatility risk, (2) extension and prepayment risk, and (3) credit risk. See the prospectus for a full description of each risk.

 

Davis Financial Fund’s investment objective is long-term growth of capital. There can be no assurance that the Fund will achieve its objective. The primary risks of an investment in Davis Financial Fund are: (1) market risk, (2) company risk, (3) concentrated financial services portfolio risk, (4) foreign country risk, (5) headline risk, and (6) selection risk. See the prospectus for a full description of each risk.

 

Davis Financial Fund concentrates its investments in the financial sector, and it may be subject to greater risks than a fund that does not concentrate its investments in a particular sector. The Fund’s investment performance, both good and bad, is expected to reflect the economic performance of the financial sector more than a fund that does not concentrate its portfolio.

 

Davis Appreciation & Income Fund’s investment objective is total return through a combination of growth and income. There can be no assurance that the Fund will achieve its objective. The primary risks of an investment in Davis Appreciation & Income Fund are: equity risks, including (1) market risk, (2) company risk, (3) small and medium capitalization risk, (4) foreign country risk, (5) headline risk, and (6) selection risk; and debt risks, including (1) interest rate sensitivity, (2) changes in debt rating, and (3) credit risk, including debt rated less than investment grade. See the prospectus for a full description of each risk. 

 

Davis Real Estate Fund’s investment objective is total return through a combination of growth and income. There can be no assurance that the Fund will achieve its objective. The primary risks of an investment in Davis Real Estate Fund are: (1) market risk, (2) company risk, (3) concentrated real estate portfolio risk, (4) focused portfolio risk, (5) small and medium capitalization risk, (6) foreign country risk, (7) headline risk, and (8) selection risk. See the prospectus for a full description of each risk.

 

Davis Real Estate Fund concentrates its investments in the real estate sector, and it may be subject to greater risks than a fund that does not concentrate its investments in a particular sector. The Fund’s investment performance, both good and bad, is expected to reflect the economic performance of the real estate sector much more than a fund that does not concentrate its portfolio.

 

Davis Real Estate Fund is allowed under its charter to focus its investments in fewer companies, and it may be subject to greater risks than a more diversified fund that is not allowed to focus its investments in a few companies. Should the portfolio manager determine that it is prudent to focus the Fund’s portfolio in a few companies, the Fund’s investment performance, both good and bad, is expected to reflect the economic performance of its more focused portfolio.

 

 

8

 

 

 

**DAVIS SERIES, INC.**

2949 East Elvira Road, Suite 101

Tucson, Arizona 85706

**Management’s Discussion and Analysis – (Continued)**

 

1       The definitions of indices quoted in this report appear below. Investments cannot be made directly in the indices.

 

I.      The Standard & Poor’s 500® Index is an unmanaged index of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The Index is adjusted for dividends, weighted towards stocks with large market capitalizations, and represents approximately two-thirds of the total market value of all domestic common stocks.

 

II.     The Dow Jones Wilshire 5000 Index measures the performance of all U.S. headquartered equity securities with readily available price data. Over 5,000 capitalization weighted security returns are used to adjust the Index. The Wilshire 5000 is a broad measure of the entire U.S. stock market.

 

III. The Russell 3000 Index measures the performance of the 3,000 largest companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market.

 

IV.   The Citigroup U.S. Treasury/Agency 1-3 Year Index is a recognized unmanaged index of short-term U.S. Government Securities’ performance. 

 

V.     The Dow Jones Wilshire Real Estate Securities Index is a broad measure of the performance of publicly traded real estate securities, such as Real Estate Investment Trusts (REITs) and Real Estate Operating Companies (REOCs). The Index is capitalization-weighted. The beginning date was January 1, 1978, and the Index is rebalanced monthly and returns are calculated on a buy and hold basis.

 

VI.   The Lehman Brothers Intermediate Term U.S. Treasury Securities Index is a recognized unmanaged index of U.S. Government Securities performance. 

 

9

 

 

 

**DAVIS SERIES, INC.**

2949 East Elvira Road, Suite 101

Tucson, Arizona 85706

**Management’s Discussion and Analysis – (Continued)**

 

2      Total return assumes reinvestment of dividends and capital gain distributions. Past performance is not a guarantee of future results. Investment return and principal value will vary so that, when redeemed, an investor’s shares may be worth more or less than when purchased. The following table lists the average annual total returns for Class A shares for the periods ended December 31, 2005. Returns for other classes of shares will vary from the following returns.

 

*(without a 4.75% sales charge taken into consideration)*

 

**FUNDNAME**

 

**1 Year**

 

**5 Years**

 

**10 Years**

 

**Inception**

Davis Opportunity*

8.33%

6.57%

12.07%

14.42% - 12/01/94

Davis Government Bond

0.98%

3.18%

3.93%

4.60% - 12/01/94

Davis Financial

8.03%

4.06%

13.25%

16.47% - 05/01/91

Davis Appreciation & Income

6.29%

6.86%

9.81%

10.66% - 05/01/92

Davis Real Estate

12.76%

18.24%

14.55%

14.28% - 01/03/94

 

*(with a 4.75% sales charge taken into consideration)*

 

**Fund Name**

 

**1 Year**

 

**5 Years**

 

**10 Years**

 

**Inception**

Davis Opportunity*

3.17%

5.53%

11.53%

13.92% - 12/01/94

Davis Government Bond

(3.82)%

2.18%

3.42%

4.14% - 12/01/94

Davis Financial

2.91%

3.05%

12.70%

16.09% - 05/01/91

Davis Appreciation & Income

1.24%

5.83%

9.28%

10.27% - 05/01/92

Davis Real Estate

7.40%

17.10%

13.99%

13.82%- 01/03/94

 

Fund performance changes over time and current performance may be higher or lower than stated. For more current information please call Davis Funds Shareholder Services at 1-800-279-0279.

 

*      In 1999 and 2000 the Davis Opportunity Fund made favorable investments in initial public offerings (IPOs), which improved short-term performance. These markets were unusual and such performance may not continue in the future.

 

3          A company or sector’s contribution to the Fund’s performance is a product both of its appreciation or depreciation and it’s weighting within the Fund. For example, a 5% holding that rises 20% has twice as much impact as a 1% holding that rises 50%.

 

4      This Management Discussion & Analysis discusses a number of individual companies. The information provided in this report does not provide information reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to purchase or sell any particular security. The schedule of investments lists each Fund’s holdings of each company discussed.  

 

Shares of the Davis Funds are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including possible loss of the principal amount invested.

 

10

 

 

 

**DAVIS SERIES, INC.**

FUND OVERVIEW

**DAVIS OPPORTUNITY FUND**

At December 31, 2005

 

PIE CHARTS – GRAPHIC OMITTED

 

**Portfolio Makeup**

 

 

**Sector Weightings**

 

 

**(% of Fund Net Assets)**

**%**

 

**(% of Long Term Portfolio)**

**%**

 

 

 

 

 

 

 

Common Stock

97.1%

 

Diversified Financials

12.7%

 

Short Term Investments,

 

 

Retail

11.3%

 

Convertible Bonds, Other

 

 

Technology

9.9%

 

Assets, & Liabilities

2.9%

 

Health Care

8.7%

 

 

 

 

Insurance

8.4%

 

 

 

 

Media

7.7%

 

 

 

 

Capital Goods

7.3%

 

 

 

 

Consumer Durables & Apparel

6.8%

 

 

 

 

Other

6.0%

 

 

 

 

Automobiles & Components

5.3%

 

 

 

 

Banks

4.3%

 

 

 

 

Telecommunications

3.6%

 

 

 

 

Materials

3.3%

 

 

 

 

Food, Beverage, & Tobacco

2.4%

 

 

 

 

Energy

2.3%

 

 

 

 

 

 

 

 

 

 

 

**Top 10 Holdings**

**Sector**

**% of Fund****Net Assets**

AutoNation, Inc.

Automotive Retail

3.59%

Lagardere S.C.A.

Media

3.41%

Harley-Davidson, Inc.

Automobiles & Components

2.88%

Garmin Ltd.

Consumer Durables & Apparel

2.84%

Advance Auto Parts, Inc.

Automotive Retail

2.69%

E*TRADE Financial Corp.

Capital Markets

2.66%

Cardinal Health, Inc.

Health Care Equipment & Services

2.61%

Molex Inc., Class A

Technology Hardware & Equipment

2.59%

Hunter Douglas NV

Consumer Durables & Apparel

2.46%

Groupe Bruxelles Lambert S.A.

Diversified Financial Services

2.43%

 

 

11

 

 

 

**DAVIS SERIES, INC.**

**DAVIS OPPORTUNITY FUND**

**Portfolio Activity – January 1, 2005 through December 31, 2005**

 

                                                                                      

**New Positions Added (01/01/05 - 12/31/05)**

(Highlighted positions are those greater than 2.00% of 12/31/05 total net assets)

 

 

 

 

**% of 12/31/05**

 

 

**Date of 1st**

**Fund**

**Security**

**Sector**

**Purchase**

**Net Assets**

Advance Auto Parts, Inc.

Automotive Retail

02/17/05

2.69%

Ambac Financial Group, Inc.

Property & Casualty Insurance

07/01/05

0.89%

American Standard Cos, Inc.

Capital Goods

10/31/05

0.96%

Autoliv, Inc.

Automobiles & Components

05/17/05

1.50%

Blount International, Inc.

Consumer Durables & Apparel

12/21/05

0.37%

EchoStar Communications Corp., Class A

Media

09/26/05

1.69%

E*TRADE Financial Corp.

Capital Markets

03/31/05

2.66%

Expedia, Inc.

Internet Retail

10/07/05

1.61%

First Marblehead Corp.

Consumer Finance

08/22/05

2.10%

Franklin Electric Co., Inc.

Capital Goods

07/20/05

0.96%

Harley-Davidson, Inc.

Automobiles & Components

11/02/05

2.88%

Huntsman Corp.

Materials

02/10/05

0.75%

Iron Mountain, Inc.

Software & Services

01/19/05

1.27%

Lear Corp.

Automobiles & Components

04/18/05

0.81%

Legg Mason, Inc.

Capital Markets

07/01/05

1.01%

Level 3 Communications, Inc., Conv. Sr.

Notes, 10.00%, 05/01/11

Telecommunication Services

04/04/05

 

0.79%

Molex Inc., Class A

Technology Hardware & Equipment

03/21/05

2.59%

NTL Inc.

Media

07/22/05

1.01%

Office Depot, Inc.

Specialty Stores

03/23/05

2.23%

Pargesa Holding S.A., Bearer Shares

Diversified Financial Services

07/22/05

2.05%

Power Corp. of Canada

Diversified Financial Services

07/22/05

1.85%

Refco, Inc.

Diversified Financial Services

08/10/05

–

Robbins & Myers, Inc.

Capital Goods

02/08/05

2.06%

ServiceMaster Co.

Consumer Services

02/09/05

2.06%

Tenaris S.A., ADR

Energy

09/13/05

0.44%

Toll Brothers, Inc.

Consumer Durables & Apparel

01/10/05

–

Zimmer Holdings, Inc.

Health Care Equipment & Services

12/02/05

0.97%

 

 

12

 

 

 

**DAVIS SERIES, INC.**

**DAVIS OPPORTUNITY FUND**

**Portfolio Activity – January 1, 2005 through December 31, 2005**

 

                                                                                      

**Positions Closed (01/01/05 - 12/31/05)**

(Gains and losses greater than $2,000,000 are highlighted)

 

 

 

**Date of**

**Realized**

**Security**

**Sector**

**Final Sale**

**Gain (Loss)**

Applied Materials, Inc.

Semiconductor & Semiconductor 

Equipment

02/08/05

$

706,549

 

Aramark Corp., Class B

Commercial Services & Supplies

01/14/05

 

691,931

 

AutoZone, Inc.

Automotive Retail

10/28/05

 

955,484

 

Calpine Corp.

Utilities

12/01/05

 

(9,129,508

)

Compal Electronics, Inc.

Technology Hardware & Equipment

04/22/05

 

 (709,346

)

Home Depot, Inc.

Home Improvement Retail

03/04/05

 

2,367,389

 

JPMorgan Chase & Co.

Diversified Financial Services

03/23/05

 

1,424,117

 

McDonald’s Corp.

Consumer Services

03/17/05

 

3,223,079

 

Microsoft Corp.

Software & Services

02/15/05

 

185,577

 

Motorola, Inc.

Technology Hardware & Equipment

02/08/05

 

2,059,243

 

Nokia Oyj

Technology Hardware & Equipment

03/22/05

 

 (234,067

)

Nokia Oyj, ADR

Technology Hardware & Equipment

04/19/05

 

1,439,741

 

PetroChina Co. Ltd., ADR

Energy

01/14/05

 

2,822,516

 

Premcor Inc.

Energy

01/18/05

 

6,460,346

 

Providian Financial Corp.

Consumer Finance

07/21/05

 

(2,811,209

)

Refco, Inc.

Diversified Financial Services

10/18/05

 

(3,343,356

)

Rentokil Initial PLC

Commercial Services & Supplies

09/12/05

 

(1,303,961

)

Sears Holdings Corp.

Apparel Retail

11/11/05

 

7,615,134

 

Sears Holdings Corp. Put Options

Apparel Retail

09/22/05

 

219,053

 

Taiwan Semiconductor 

Manufacturing Co. Ltd.

Semiconductor & Semiconductor 

Equipment

02/17/05

 

72,520

 

Taiwan Semiconductor 

Manufacturing Co. Ltd., ADR

Semiconductor & Semiconductor 

Equipment

02/08/05

 

147,934

 

Toll Brothers, Inc.

Consumer Durables & Apparel

05/02/05

 

39,773

 

Unilever NV, CVA

Food, Beverage, & Tobacco

03/07/05

 

157,931

 

WH Smith PLC

Specialty Stores

01/14/05

 

(415,053

)

 

 

13

 

 

 

**DAVIS SERIES, INC.**

**DAVIS OPPORTUNITY FUND**

**Class A Fund Performance**

 

**Average Annual Total Return**

 

**Expense Example**

 

 

 

**for the periods ended December 31, 2005**

 

**Beginning**

**Ending**

**Expenses Paid**

(This calculation includes an initial 

 

 

**Account Value**

**Account Value**

**During Period***

sales charge of 4.75%.)

 

 

**(07/01/05)**

**(12/31/05)**

**(07/01/05-12/31/05)**

One Year

3.17%

Actual

$1,000.00

$1,066.31

$5.89

Five Years

5.53%

Hypothetical (5% return

 

 

 

Ten Years

11.53%

before expenses)

$1,000.00

$1,019.51

$5.75

 

*Expenses are equal to the Class’s annualized expense ratio (1.13%), multiplied by the average account value****over the period, multiplied by 184/365 (to reflect the one-half year period). See Notes to Performance on page 42 for a description of the “Expense Example”.

 

**$10,000 invested over ten years**. Let’s say you invested $10,000 in Davis Series, Inc., Class A shares of Davis Opportunity Fund (“DOF-A”) on December 31, 1995 and paid a 4.75% sales charge. As the chart shows, by December 31, 2005, the value of your investment would have grown to $29,767 - a 197.67% increase on your initial investment. For comparison, the Dow Jones Wilshire 5000 Stock Index and the Russell 3000 Stock Index are presented on the chart below.

 

The Dow Jones Wilshire 5000 Stock Index measures the performance of all U.S. headquartered equity securities with readily available price data. Over 5,000 capitalization weighted security returns are used to adjust the Index. The Dow Jones Wilshire 5000 is a broad measure of the entire U.S. stock market.

 

The Russell 3000 Stock Index measures the performance of the 3,000 largest companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market.

 

The performance data for Davis Opportunity Fund, contained in this report, represents past performance and assumes that all distributions were reinvested, and should not be considered as an indication of future performance from an investment in the Fund today. The investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

 

In 1999 and 2000 the Davis Opportunity Fund made favorable investments in initial public offerings (IPOs), which improved short-term performance. These markets were unusual and such performance may not continue in the future.

 

14

 

 

 

**DAVIS SERIES, INC.**

**DAVIS OPPORTUNITY FUND**

**Class B Fund Performance**

 

**Average Annual Total Return**

 

**Expense Example**

 

 

 

**for the periods ended December 31, 2005**

 

**Beginning**

**Ending**

**Expenses Paid**

(This calculation includes any applicable

 

 

**Account Value**

**Account Value**

**During Period***

deferred contingent sales charge.)

 

 

**(07/01/05)**

**(12/31/05)**

**(07/01/05-12/31/05)**

One Year

3.49%

Actual

$1,000.00

$1,062.46

$9.93

Five Years

5.39%

Hypothetical (5% return

 

 

 

Ten Years

11.37%

before expenses)

$1,000.00

$1,015.58

$9.70

 

*Expenses are equal to the Class’s annualized expense ratio (1.91%), multiplied by the average account value****over the period, multiplied by 184/365 (to reflect the one-half year period). See Notes to Performance on page 42 for a description of the “Expense Example”.

 

**$10,000 invested over ten years**. Let’s say you invested $10,000 in Davis Series, Inc., Class B shares of Davis Opportunity Fund (“DOF-B”) on December 31, 1995 and converted to Class A shares on December 31, 2003.  As the chart shows, by December 31, 2005, the value of your investment would have grown to $29,378 - a 193.78% increase on your initial investment. For comparison, the Dow Jones Wilshire 5000 Stock Index and the Russell 3000 Stock Index are presented on the chart below.

 

The Dow Jones Wilshire 5000 Stock Index measures the performance of all U.S. headquartered equity securities with readily available price data. Over 5,000 capitalization weighted security returns are used to adjust the Index. The Dow Jones Wilshire 5000 is a broad measure of the entire U.S. stock market.

 

The Russell 3000 Stock Index measures the performance of the 3,000 largest companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market.

 

Because Class B shares automatically convert to Class A shares after 8 years, the above graph and the “Ten Years” return for Class B reflect Class A performance for the period after conversion.

 

The performance data for Davis Opportunity Fund, contained in this report, represents past performance and assumes that all distributions were reinvested, and should not be considered as an indication of future performance from an investment in the Fund today. The investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

 

In 1999 and 2000 the Davis Opportunity Fund made favorable investments in initial public offerings (IPOs), which improved short-term performance. These markets were unusual and such performance may not continue in the future.

 

15

 

 

 

**DAVIS SERIES, INC.**

**DAVIS OPPORTUNITY FUND**

**Class C Fund Performance**

 

**Average Annual Total Return**

 

**Expense Example**

 

 

 

**for the periods ended December 31, 2005**

 

**Beginning**

**Ending**

**Expenses Paid**

(This calculation includes any applicable

 

 

**Account Value**

**Account Value**

**During Period***

contingent deferred sales charge.)

 

 

**(07/01/05)**

**(12/31/05)**

**(07/01/05-12/31/05)**

One Year

6.48%

Actual

$1,000.00

$1,061.88

$9.87

Five Years

5.71%

Hypothetical (5% return

 

 

 

Life of Class (August 15, 1997

through December 31, 2005)

7.40%

before expenses)

$1,000.00

$1,015.63

$9.65

 

*Expenses are equal to the Class’s annualized expense ratio (1.90%), multiplied by the average account value****over the period, multiplied by 184/365 (to reflect the one-half year period). See Notes to Performance on page 42 for a description of the “Expense Example”.

 

**$10,000 invested at inception**. Let’s say you invested $10,000 in Davis Series, Inc., Class C shares of Davis Opportunity Fund (“DOF-C”) on August 15, 1997 (inception of class). As the chart shows, by December 31, 2005, the value of your investment would have grown to $18,185 - a 81.85% increase on your initial investment. For comparison, the Dow Jones Wilshire 5000 Stock Index and the Russell 3000 Stock Index are presented on the chart below.

 

The Dow Jones Wilshire 5000 Stock Index measures the performance of all U.S. headquartered equity securities with readily available price data. Over 5,000 capitalization weighted security returns are used to adjust the Index. The Dow Jones Wilshire 5000 is a broad measure of the entire U.S. stock market.

 

The Russell 3000 Stock Index measures the performance of the 3,000 largest companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market.

 

The performance data for Davis Opportunity Fund, contained in this report, represents past performance and assumes that all distributions were reinvested, and should not be considered as an indication of future performance from an investment in the Fund today. The investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

 

In 1999 and 2000 the Davis Opportunity Fund made favorable investments in initial public offerings (IPOs), which improved short-term performance. These markets were unusual and such performance may not continue in the future.

 

16

 

 

 

**DAVIS SERIES, INC.**

**DAVIS OPPORTUNITY FUND**

**Class Y Fund Performance**

 

**Average Annual Total Return**

 

**Expense Example**

 

 

 

**for the periods ended December 31, 2005**

 

**Beginning**

**Ending**

**Expenses Paid**

(There is no sales charge applicable

 

 

**Account Value**

**Account Value**

**During Period***

to this calculation.)

 

 

**(07/01/05)**

**(12/31/05)**

**(07/01/05-12/31/05)**

One Year

8.70%

Actual

$1,000.00

$1,068.13

$4.22

Five Years

6.93%

Hypothetical (5% return

 

 

 

Life of Class (September 18, 1997

through December 31, 2005)

7.91%

before expenses)

$1,000.00

$1,021.12

$4.13

 

*Expenses are equal to the Class’s annualized expense ratio (0.81%), multiplied by the average account value****over the period, multiplied by 184/365 (to reflect the one-half year period). See Notes to Performance on page 42 for a description of the “Expense Example”.

 

**$10,000 invested at inception**. Let’s say you invested $10,000 in Davis Series, Inc., Class Y shares of Davis Opportunity Fund (“DOF-Y”) on September 18, 1997 (inception of class). As the chart shows, by December 31, 2005, the value of your investment would have grown to $18,790 - a 87.90% increase on your initial investment. For comparison, the Dow Jones Wilshire 5000 Stock Index and the Russell 3000 Stock Index are presented on the chart below.

 

The Dow Jones Wilshire 5000 Stock Index measures the performance of all U.S. headquartered equity securities with readily available price data. Over 5,000 capitalization weighted security returns are used to adjust the Index. The Dow Jones Wilshire 5000 is a broad measure of the entire U.S. stock market.

 

The Russell 3000 Stock Index measures the performance of the 3,000 largest companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market.

 

The performance data for Davis Opportunity Fund, contained in this report, represents past performance and assumes that all distributions were reinvested, and should not be considered as an indication of future performance from an investment in the Fund today. The investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

 

In 1999 and 2000 the Davis Opportunity Fund made favorable investments in initial public offerings (IPOs), which improved short-term performance. These markets were unusual and such performance may not continue in the future.

 

17

 

 

 

**DAVIS SERIES, INC.**

FUND OVERVIEW

**DAVIS GOVERNMENT BOND FUND**

At December 31, 2005

 

PIE CHARTS – GRAPHIC OMITTED

 

**Portfolio Makeup**

 

 

**Sector Weighting**

 

 

**(% of Fund Net Assets)**

**%**

 

**(% of Fixed Income)**

**%**

 

 

 

 

 

 

 

Fixed Income

94.0%

 

Government Agency Notes

55.7%

 

Short Term Investments, Other

 

 

Freddie Mac Mortgage Pools

23.7%

 

Assets, & Liabilities

6.0%

 

Fannie Mae Mortgage Pools

20.6%

 

 

 

 

 

 

 

 

 

 

 

**Top 10 Holdings**

**Sector**

**% of Fund****Net Assets**

Fannie Mae, 6.00%, 09/01/17 Pool No. 665776

Fannie Mae Pools

11.71%

Fannie Mae, 7.125%, 03/15/07

Government Agency Notes

10.27%

Freddie Mac, 5.50%, 07/15/06

Government Agency Notes

10.05%

Federal Farm Credit Bank, 4.26%, 01/18/06

Government Agency Notes

10.00%

Freddie Mac, 3.40%, 10/15/07

Government Agency Notes

8.48%

Fannie Mae, 6.00%, 05/15/08

Government Agency Notes

4.11%

Fannie Mae, 4.884%, 03/01/35 Pool No. 773269

Fannie Mae Pools

3.83%

Freddie Mac, 5.00%, 05/01/10 Pool No. M90980

Freddie Mac Pools

3.74%

Freddie Mac, 3.00%, 04/01/10 Pool No. M90982

Freddie Mac Pools

3.73%

Freddie Mac, 4.50%, 03/01/08 Pool No. M90803

Freddie Mac Pools

3.29%

 

 

 

18

 

 

 

**DAVIS SERIES, INC.**

**DAVIS GOVERNMENT BOND FUND**

**Class A Fund Performance**

 

**Average Annual Total Return**

 

**Expense Example**

 

 

 

**for the periods ended December 31, 2005**

 

**Beginning**

**Ending**

**Expenses Paid**

(This calculation includes an initial 

 

 

**Account Value**

**Account Value**

**During Period***

sales charge of 4.75%.)

 

 

**(07/01/05)**

**(12/31/05)**

**(07/01/05-12/31/05)**

One Year

(3.82)%

Actual

$1,000.00

$1,002.97

$5.20

Five Years

2.18%

Hypothetical (5% return

 

 

 

Ten Years

3.42%

before expenses)

$1,000.00

$1,020.01

$5.24

 

*Expenses are equal to the Class’s annualized expense ratio (1.03%), multiplied by the average account value****over the period, multiplied by 184/365 (to reflect the one-half year period). See Notes to Performance on page 42 for a description of the “Expense Example”.

 

**$10,000 invested over ten years**. Let’s say you invested $10,000 in Davis Series, Inc., Class A shares of Davis Government Bond Fund (“DGBF-A”) on December 31, 1995 and paid a 4.75% sales charge. As the chart shows, by December 31, 2005, the value of your investment would have grown to $14,003 – a 40.03**%** increase on your initial investment. For comparison, the Lehman Brothers Intermediate Term U.S. Treasury Securities Index and the Citigroup U.S. Treasury/Agency 1-3 Year Index are also presented on the chart below.

 

The Lehman Brothers Intermediate Term U.S. Treasury Securities Index is an unmanaged index which has no specific investment objective.  Investments cannot be made directly in the Index. 

 

The Citigroup U.S. Treasury/Agency 1-3 Year Index is a recognized unmanaged index of short-term U.S. Government securities’ performance. 

 

The performance data for Davis Government Bond Fund, contained in this report, represents past performance and assumes that all distributions were reinvested, and should not be considered as an indication of future performance from an investment in the Fund today. The investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

 

19

 

 

 

**DAVIS SERIES, INC.**

**DAVIS GOVERNMENT BOND FUND**

**Class B Fund Performance**

 

**Average Annual Total Return**

 

**Expense Example**

 

 

 

**for the periods ended December 31, 2005**

 

**Beginning**

**Ending**

**Expenses Paid**

(This calculation includes any applicable

 

 

**Account Value**

**Account Value**

**During Period***

contingent deferred sales charge.)

 

 

**(07/01/05)**

**(12/31/05)**

**(07/01/05-12/31/05)**

One Year

(3.60)%

Actual

$1,000.00

$1,001.45

$8.93

Five Years

2.13%

Hypothetical (5% return

 

 

 

Ten Years

3.30%

before expenses)

$1,000.00

$1,016.28

$9.00

 

*Expenses are equal to the Class’s annualized expense ratio (1.77%), multiplied by the average account value****over the period, multiplied by 184/365 (to reflect the one-half year period). See Notes to Performance on page 42 for a description of the “Expense Example”.

 

**$10,000 invested over ten years**. Let’s say you invested $10,000 in Davis Series, Inc., Class B shares of Davis Government Bond Fund (“DGBF-B”) on December 31, 1995 and converted to Class A shares on December 31, 2003. As the chart shows, by December 31, 2005, the value of your investment would have grown to $13,842 - a 38.42% increase on your initial investment. For comparison, the Lehman Brothers Intermediate Term U.S. Treasury Securities Index and the Citigroup U.S. Treasury/Agency 1-3 Year Index are also presented on the chart below.

 

The Lehman Brothers Intermediate Term U.S. Treasury Securities Index is an unmanaged index which has no specific investment objective.  Investments cannot be made directly in the Index. 

 

The Citigroup U.S. Treasury/Agency 1-3 Year Index is a recognized unmanaged index of short-term U.S. Government securities’ performance. 

 

Because Class B shares automatically convert to Class A shares after 8 years, the above graph and the “Ten Years” return for Class B reflect Class A performance for the period after conversion.

 

The performance data for Davis Government Bond Fund, contained in this report, represents past performance and assumes that all distributions were reinvested, and should not be considered as an indication of future performance from an investment in the Fund today. The investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

 

20

 

 

 

**DAVIS SERIES, INC.**

**DAVIS GOVERNMENT BOND FUND**

**Class C Fund Performance**

 

**Average Annual Total Return**

 

**Expense Example**

 

 

 

**for the periods ended December 31, 2005**

 

**Beginning**

**Ending**

**Expenses Paid**

(This calculation includes any applicable

 

 

**Account Value**

**Account Value**

**During Period***

contingent deferred sales charge.)

 

 

**(07/01/05)**

**(12/31/05)**

**(07/01/05-12/31/05)**

One Year

(0.69)%

Actual

$1,000.00

$1,001.27

$9.18

Five Years

2.46%

Hypothetical (5% return

 

 

 

Life of Class (August 19, 1997

through December 31, 2005)

2.97%

before expenses)

$1,000.00

$1,016.03

$9.25

 

*Expenses are equal to the Class’s annualized expense ratio (1.82%), multiplied by the average account value****over the period, multiplied by 184/365 (to reflect the one-half year period). See Notes to Performance on page 42 for a description of the “Expense Example”.

 

**$10,000 invested at inception**. Let’s say you invested $10,000 in Davis Series, Inc., Class C shares of Davis Government Bond Fund (“DGBF-C”) on August 19, 1997 (inception of class). As the chart shows, by December 31, 2005, the value of your investment would have grown to $12,779 - a 27.79% increase on your initial investment. For comparison, the Lehman Brothers Intermediate Term U.S. Treasury Securities Index and the Citigroup U.S. Treasury/Agency 1-3 Year Index are also presented on the chart below.

 

The Lehman Brothers Intermediate Term U.S. Treasury Securities Index is an unmanaged index which has no specific investment objective. Investments cannot be made directly in the Index. 

 

The Citigroup U.S. Treasury/Agency 1-3 Year Index is a recognized unmanaged index of short-term U.S. Government securities’ performance. 

 

The performance data for Davis Government Bond Fund, contained in this report, represents past performance and assumes that all distributions were reinvested, and should not be considered as an indication of future performance from an investment in the Fund today. The investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

 

21

 

 

 

**DAVIS SERIES, INC.**

**DAVIS GOVERNMENT BOND FUND**

**Class Y Fund Performance**

 

**Average Annual Total Return**

 

**Expense Example**

 

 

 

**for the periods ended December 31, 2005**

 

**Beginning**

**Ending**

**Expenses Paid**

(There is no sales charge applicable

 

 

**Account Value**

**Account Value**

**During Period***

to this calculation.)

 

 

**(07/01/05)**

**(12/31/05)**

**(07/01/05-12/31/05)**

One Year

1.22%

Actual

$1,000.00

$1,005.83

$5.26

Five Years

3.46%

Hypothetical (5% return

 

 

 

Life of Class (September 1, 1998

through December 31, 2005)

3.53%

before expenses)

$1,000.00

$1,019.96

$5.30

 

*Expenses are equal to the Class’s annualized expense ratio (1.04%), multiplied by the average account value****over the period, multiplied by 184/365 (to reflect the one-half year period). See Notes to Performance on page 42 for a description of the “Expense Example”.

 

**$10,000 invested at inception**. Let’s say you invested $10,000 in Davis Series, Inc., Class Y shares of Davis Government Bond Fund (“DGBF-Y”) on September 1, 1998 (inception of class). As the chart shows, by December 31, 2005, the value of your investment would have been $12,892 - a 28.92% increase on your initial investment. For comparison, the Lehman Brothers Intermediate Term U.S. Treasury Securities Index and the Citigroup U.S. Treasury/Agency 1-3 Year Index are also presented on the chart below.

 

The Lehman Brothers Intermediate Term U.S. Treasury Securities Index is an unmanaged index which has no specific investment objective.  Investments cannot be made directly in the Index. 

 

The Citigroup U.S. Treasury/Agency 1-3 Year Index is a recognized unmanaged index of short-term U.S. Government securities’ performance. 

 

The performance data for Davis Government Bond Fund, contained in this report, represents past performance and assumes that all distributions were reinvested, and should not be considered as an indication of future performance from an investment in the Fund today. The investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

 

22

 

 

 

**DAVIS SERIES, INC.**

FUND OVERVIEW

**DAVIS GOVERNMENT MONEY MARKET FUND**

At December 31, 2005

 

PIE CHARTS – GRAPHIC OMITTED

 

**Portfolio Makeup**

 

 

**Maturity Diversification**

 

 

**(% of Fund Net Assets)**

**%**

 

**(% of Portfolio Holdings)**

**%**

 

 

 

 

 

 

 

Repurchase Agreements, Other

 

 

0-30 Days

53.2%

 

Assets, & Liabilities

41.4%

 

31-90 Days

18.3%

 

Federal Home Loan Bank

32.0%

 

91-180 Days

19.9%

 

FANNIE MAE

12.0%

 

181-391 Days

8.6%

 

FREDDIE MAC

11.4%

 

 

 

 

Federal Farm Credit Bank

3.2%

 

 

 

 

 

 

 

 

 

 

 

*The maturity dates of floating rate securities used in the Maturity Diversification chart are considered to be the effective maturities, based on the reset dates of the securities’ variable rates.  See the Fund’s Schedule of Investments for a listing of the floating rate securities.

 

 

**Expense Example**

 

 

 

**Classes A, B, C, & Y**

**Beginning**

**Ending**

**Expenses Paid**

 

**Account Value**

**Account Value**

**During Period***

 

**(07/01/05)**

**(12/31/05)**

**(07/01/05-12/31/05)**

Actual

$1,000.00

$1,016.07

$2.85

Hypothetical (5% return

 

 

 

before expenses)

$1,000.00

$1,022.38

$2.85

 

*Expenses are equal to the Classes’ annualized expense ratio (0.56%), multiplied by the average account value****over the period, multiplied by 184/365 (to reflect the one-half year period). See Notes to Performance on page 42 for a description of the “Expense Example”.

 

23

 

 

 

**DAVIS SERIES, INC.**

FUND OVERVIEW

**DAVIS FINANCIAL FUND**

At December 31, 2005

 

PIE CHARTS – GRAPHIC OMITTED

 

**Portfolio Makeup**

 

 

**Sector Weightings**

 

 

**(% of Fund Net Assets)**

**%**

 

**(% of Stock Holdings)**

**%**

 

 

 

 

 

 

 

Common Stock

100.2%

 

Insurance

38.8%

 

Short Term Investments, Other

 

 

Diversified Financials

27.2%

 

Assets, & Liabilities

(0.2)%

 

Banks

12.1%

 

 

 

 

Capital Goods

7.7%

 

 

 

 

Commercial Services & Supplies

6.5%

 

 

 

 

Materials

2.8%

 

 

 

 

Food, Beverage, & Tobacco

2.8%

 

 

 

 

Consumer Services

2.1%

 

 

 

 

 

 

 

 

 

 

 

**Top 10 Holdings**

**Sector**

**% of Fund****Net Assets**

American Express Co.

Consumer Finance

11.00%

Transatlantic Holdings, Inc.

Reinsurance

10.52%

Tyco International Ltd.

Capital Goods

7.75%

Golden West Financial Corp.

Thrift & Mortgage Finance

7.29%

D&B Corp.

Commercial Services & Supplies

6.49%

American International Group, Inc.

Multi-Line Insurance

6.18%

Moody’s Corp.

Diversified Financial Services

5.88%

Berkshire Hathaway Inc., Class A

Property & Casualty Insurance

5.41%

Loews Corp.

Multi-Line Insurance

5.10%

Commerce Bancorp, Inc.

Commercial Banks

4.56%

 

 

24

 

 

 

**DAVIS SERIES, INC.**

**DAVIS FINANCIAL FUND**

**Portfolio Activity – January 1, 2005 through December 31, 2005**

 

                                                                                      

**New Positions Added (01/01/05 - 12/31/05)**

(Highlighted positions are those greater than 2.50% of 12/31/05 total net assets)

 

 

 

 

**% of 12/31/05**

 

 

**Date of 1st**

**Fund**

**Security**

**Sector**

**Purchase**

**Net Assets**

First Marblehead Corp.

Consumer Finance

09/16/05

2.94%

ICICI Bank Ltd., ADR

Commercial Banks

12/06/05

0.24%

 

 

 

 

                                                                                                                                                                                                                   

**Positions Closed (01/01/05 - 12/31/05)**

(Gains and losses greater than $10,000,000 are highlighted)

 

 

 

**Date of**

**Realized**

**Security**

**Sector**

**Final Sale**

**Gain (Loss)**

Cincinnati Financial Corp.

Property & Casualty Insurance

10/25/05

$

13,556,000

 

Citigroup Inc.

Diversified Financial Services

10/04/05

 

24,827,430

 

Fifth Third Bancorp

Commercial Banks

03/14/05

 

938,191

 

Julius Baer Holding, Ltd. AG

Capital Markets

01/24/05

 

2,509,648

 

Providian Financial Corp.

Consumer Finance

06/24/05

 

2,827,280

 

 

 

 

 

 

 

 

 

25

 

 

 

**DAVIS SERIES, INC.**

**DAVIS FINANCIAL FUND**

**Class A Fund Performance**

 

**Average Annual Total Return**

 

**Expense Example**

 

 

 

**for the periods ended December 31, 2005**

 

**Beginning**

**Ending**

**Expenses Paid**

(This calculation includes an 

 

 

**Account Value**

**Account Value**

**During Period***

initial sales charge of 4.75%.)

 

 

**(07/01/05)**

**(12/31/05)**

**(07/01/05-12/31/05)**

One Year

2.91%

Actual

$1,000.00

$1,115.42

$5.07

Five Years

3.05%

Hypothetical (5% return

 

 

 

Ten Years

12.70%

before expenses)

$1,000.00

$1,020.42

$4.84

 

*Expenses are equal to the Class’s annualized expense ratio (0.95%), multiplied by the average account value****over the period, multiplied by 184/365 (to reflect the one-half year period). See Notes to Performance on page 42 for a description of the “Expense Example”.

 

**$10,000 invested over ten years**. Let’s say you invested $10,000 in Davis Series, Inc., Class A shares of Davis Financial Fund (“DFF-A”) on December 31, 1995 and paid a 4.75% sales charge. As the chart shows, by December 31, 2005, the value of your investment would have grown to $33,052 - a 230.52% increase on your initial investment. For comparison, look at how the Standard & Poor's 500 Stock Index did over the same period.  With dividends reinvested, the same $10,000 investment would have grown to $23,830 - a 138.30% increase.

 

The Standard & Poor’s 500 Stock Index is an unmanaged index of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The Index is adjusted for dividends, weighted towards stocks with large market capitalizations, and represents approximately two-thirds of the total market value of all domestic common stocks.

 

The performance data for Davis Financial Fund, contained in this report, represents past performance and assumes that all distributions were reinvested, and should not be considered as an indication of future performance from an investment in the Fund today. The investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

 

26

 

 

 

**DAVIS SERIES, INC.**

**DAVIS FINANCIAL FUND**

**Class B Fund Performance**

 

**Average Annual Total Return**

 

**Expense Example**

 

 

 

**for the periods ended December 31, 2005**

 

**Beginning**

**Ending**

**Expenses Paid**

(This calculation includes any applicable

 

 

**Account Value**

**Account Value**

**During Period***

contingent deferred sales charge.)

 

 

**(07/01/05)**

**(12/31/05)**

**(07/01/05-12/31/05)**

One Year

3.08%

Actual

$1,000.00

$1,110.46

$9.84

Five Years

2.81%

Hypothetical (5% return

 

 

 

Ten Years

12.45%

before expenses)

$1,000.00

$1,015.88

$9.40

 

*Expenses are equal to the Class’s annualized expense ratio (1.85%), multiplied by the average account value****over the period, multiplied by 184/365 (to reflect the one-half year period). See Notes to Performance on page 42 for a description of the “Expense Example”.

 

**$10,000 invested over ten years**. Let’s say you invested $10,000 in Davis Series, Inc., Class B shares of Davis Financial Fund (“DFF-B”) on December 31, 1995 and converted to Class A shares on December 31, 2003. As the chart shows, by December 31, 2005, the value of your investment would have grown to $32,357 - a 223.57% increase on your initial investment. For comparison, look at how the Standard & Poor's 500 Stock Index did over the same period.  With dividends reinvested, the same $10,000 investment would have grown to $23,830 - a 138.30% increase.

The Standard & Poor’s 500 Stock Index is an unmanaged index of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The Index is adjusted for dividends, weighted towards stocks with large market capitalizations, and represents approximately two-thirds of the total market value of all domestic common stocks.

 

Because Class B shares automatically convert to Class A shares after 8 years, the above graph and the “Ten Years” return for Class B reflect Class A performance for the period after conversion.

 

The performance data for Davis Financial Fund, contained in this report, represents past performance and assumes that all distributions were reinvested, and should not be considered as an indication of future performance from an investment in the Fund today. The investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

 

27

 

 

 

**DAVIS SERIES, INC.**

**DAVIS FINANCIAL FUND**

**Class C Fund Performance**

 

**Average Annual Total Return**

 

**Expense Example**

 

 

 

**for the periods ended December 31, 2005**

 

**Beginning**

**Ending**

**Expenses Paid**

(This application includes any applicable

 

 

**Account Value**

**Account Value**

**During Period***

contingent deferred sales charge.)

 

 

**(07/01/05)**

**(12/31/05)**

**(07/01/05-12/31/05)**

One Year

6.07%

Actual

$1,000.00

$1,110.40

$9.79

Five Years

3.16%

Hypothetical (5% return

 

 

 

Life of Class (August 12, 1997

through December 31, 2005)

7.72%

before expenses)

$1,000.00

$1,015.93

$9.35

 

*Expenses are equal to the Class’s annualized expense ratio (1.84%), multiplied by the average account value****over the period, multiplied by 184/365 (to reflect the one-half year period). See Notes to Performance on page 42 for a description of the “Expense Example”.

 

**$10,000 invested at inception**. Let’s say you invested $10,000 in Davis Series, Inc., Class C shares of Davis Financial Fund (“DFF-C”) on August 12, 1997 (inception of class). As the chart shows, by December 31, 2005, the value of your investment would have grown to $18,657 - a 86.57% increase on your initial investment. For comparison, look at how the Standard & Poor's 500 Stock Index did over the same period.  With dividends reinvested, the same $10,000 investment would have grown to $15,334 - a 53.34% increase.

 

The Standard & Poor’s 500 Stock Index is an unmanaged index of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The Index is adjusted for dividends, weighted towards stocks with large market capitalizations, and represents approximately two-thirds of the total market value of all domestic common stocks.

 

The performance data for Davis Financial Fund, contained in this report, represents past performance and assumes that all distributions were reinvested, and should not be considered as an indication of future performance from an investment in the Fund today. The investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

 

28

 

 

 

**DAVIS SERIES, INC.**

**DAVIS FINANCIAL FUND**

**Class Y Fund Performance**

 

**Average Annual Total Return**

 

**Expense Example**

 

 

 

**for the periods ended December 31, 2005**

 

**Beginning**

**Ending**

**Expenses Paid**

(There is no sales charge applicable

 

 

**Account Value**

**Account Value**

**During Period***

to this calculation.)

 

 

**(07/01/05)**

**(12/31/05)**

**(07/01/05-12/31/05)**

One Year

8.18%

Actual

$1,000.00

$1,116.20

$4.27

Five Years

4.24%

Hypothetical (5% return

 

 

 

Life of Class (March 10, 1997

through December 31, 2005)

10.38%

before expenses)

$1,000.00

$1,021.17

$4.08

 

*Expenses are equal to the Class’s annualized expense ratio (0.80%), multiplied by the average account value****over the period, multiplied by 184/365 (to reflect the one-half year period). See Notes to Performance on page 42 for a description of the “Expense Example”.

 

**$10,000 invested at inception**. Let’s say you invested $10,000 in Davis Series, Inc., Class Y shares of Davis Financial Fund (“DFF-Y”) on March 10, 1997 (inception of class). As the chart shows, by December 31, 2005, the value of your investment would have grown to $23,868 - a 138.68% increase on your initial investment. For comparison, look at how the Standard & Poor's 500 Stock Index did over the same period.  With dividends reinvested, the same $10,000 investment would have grown to $17,593 - a 75.93% increase.

 

The Standard & Poor’s 500 Stock Index is an unmanaged index of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The Index is adjusted for dividends, weighted towards stocks with large market capitalizations, and represents approximately two-thirds of the total market value of all domestic common stocks.

 

The performance data for Davis Financial Fund, contained in this report, represents past performance and assumes that all distributions were reinvested, and should not be considered as an indication of future performance from an investment in the Fund today. The investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

 

29

 

 

 

**DAVIS SERIES, INC.**

FUND OVERVIEW

**DAVIS APPRECIATION & INCOME FUND**

At December 31, 2005

 

PIE CHARTS – GRAPHIC OMITTED

 

**Portfolio Makeup**

 

 

**Sector Weightings**

 

 

**(% of Fund Net Assets)**

**%**

 

**(% of Long Term Portfolio)**

**%**

 

 

 

 

 

 

 

Convertible Bonds

42.0%

 

Real Estate

13.6%

 

Short Term Investments, Other

 

 

Commercial Services & Supplies

11.9%

 

Assets, & Liabilities

25.0%

 

Capital Goods

10.7%

 

Common Stock

22.3%

 

Diversified Financials

8.5%

 

Convertible Preferred Stocks

6.5%

 

Other

8.0%

 

Corporate Bonds

4.2%

 

Energy

7.6%

 

 

 

 

Technology

7.2%

 

 

 

 

Insurance

6.7%

 

 

 

 

Health Care

5.5%

 

 

 

 

Retailing

5.2%

 

 

 

 

Household & Personal Products

4.9%

 

 

 

 

Consumer Services

3.8%

 

 

 

 

Media

3.3%

 

 

 

 

Materials

3.1%

 

 

 

 

 

 

 

 

 

 

**Top 10 Holdings**

**Sector**

**% of Fund****Net Assets**

Lehman Brothers Holdings Inc., Conv. Notes, (Convertible into Devon Energy Corp.), 0.25%, 08/23/11

Energy

5.08%

SL Green Realty Corp.

Real Estate

4.77%

American International Group, Inc., Conv. Sr. Notes, 0.50%, 05/15/07

Multi-Line Insurance

3.38%

School Specialty, Inc., Conv. Sub. Notes, 3.75%/Zero Cpn., 08/01/23

Commercial Services & 

Supplies

3.22%

Universal Health Services, Inc., Conv. Deb., 0.426%, 06/23/20

Health Care Equipment & 

Services

3.20%

American Express Co., Ser. 144A Conv. Sr. Notes, 1.85%/Zero Cpn., 12/01/33

Consumer Finance

3.02%

General Growth Properties, Inc.

Real Estate

2.94%

GTECH Holdings Corp., Conv. Deb., 1.75%, 12/15/21

Consumer Services

2.89%

International Rectifier Corp., Conv. Sub. Notes, 4.25%, 07/15/07

Semiconductor & 

Semiconductor Equipment

2.50%

Waste Connections, Inc. Conv. Sub. Notes, 4.75%, 05/01/22

Commercial Services & 

Supplies

2.34%

 

 

30

 

 

 

**DAVIS SERIES, INC.**

**DAVIS APPRECIATION & INCOME FUND**

**Portfolio Activity – January 1, 2005 through December 31, 2005**

 

                                                                                      

**New Positions Added (01/01/05 - 12/31/05)**

(Highlighted positions are those greater than 2.00% of 12/31/05 total net assets)

 

 

 

 

**% of 12/31/05**

 

 

**Date of 1st**

**Fund**

**Security**

**Sector**

**Purchase**

**Net Assets**

American International Group, Inc.

Multi-Line Insurance

09/26/05

0.43%

Avon Products, Inc.

Household & Personal Products

12/12/05

2.28%

Avon Products, Inc., Sr. Notes, 4.20%, 07/15/18

Household & Personal Products

12/21/05

1.38%

International Rectifier Corp.

Semiconductor & Semiconductor 

Equipment

10/12/05

1.07%

News Corp., Class B

Media

09/23/05

0.49%

 

 

 

 

                                                                                                                                                                                                                   

**Positions Closed (01/01/05 - 12/31/05)**

(Gains and losses greater than $2,000,000 are highlighted)

 

 

 

**Date of**

**Realized**

**Security**

**Sector**

**Final Sale**

**Gain (Loss)**

Avalonbay Communities, Inc.

Real Estate

09/26/05

$

2,409,911

 

Developers Diversified Realty Corp.

Real Estate

09/29/05

 

1,493,292

 

Vornado Realty Trust

Real Estate

03/23/05

 

3,632,703

 

WCI Communities, Inc.

Residential/Commercial Building

09/28/05

 

1,060,265

 

 

 

 

 

 

 

 

 

31

 

 

 

**DAVIS SERIES, INC.**

**DAVIS APPRECIATION & INCOME FUND**

**Class A Fund Performance**

 

**Average Annual Total Return**

 

**Expense Example**

 

 

 

**for the periods ended December 31, 2005**

 

**Beginning**

**Ending**

**Expenses Paid**

(This calculation includes an initial 

 

 

**Account Value**

**Account Value**

**During Period***

sales charge of 4.75%.)

 

 

**(07/01/05)**

**(12/31/05)**

**(07/01/05-12/31/05)**

One Year

1.24%

Actual

$1,000.00

$1,039.90

$5.40

Five Years

5.83%

Hypothetical (5% return

 

 

 

Ten Years

9.28%

before expenses)

$1,000.00

$1,019.91

$5.35

 

*Expenses are equal to the Class’s annualized expense ratio (1.05%), multiplied by the average account value****over the period, multiplied by 184/365 (to reflect the one-half year period). See Notes to Performance on page 42 for a description of the “Expense Example”.

 

**$10,000 invested over ten years**. Let’s say you invested $10,000 in Davis Series, Inc., Class A shares of Davis Appreciation & Income Fund (“DAIF-A”) on December 31, 1995 and paid a 4.75% sales charge. As the chart shows, by December 31, 2005, the value of your investment would have grown to $24,287 - a 142.87% increase on your initial investment. For comparison, the Standard and Poor's 500 Stock Index is also presented on the chart below.

 

The Standard & Poor’s 500 Stock Index is an unmanaged index of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The Index is adjusted for dividends, weighted towards stocks with large market capitalization, and represents approximately two-thirds of the total market value of all domestic common stocks.

 

The performance data for Davis Appreciation & Income Fund, contained in this report, represents past performance and assumes that all distributions were reinvested, and should not be considered as an indication of future performance from an investment in the Fund today. The investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

 

32

 

 

 

**DAVIS SERIES, INC.**

**DAVIS APPRECIATION & INCOME FUND**

**Class B Fund Performance**

 

**Average Annual Total Return**

 

**Expense Example**

 

 

 

**for the periods ended December 31, 2005**

 

**Beginning**

**Ending**

**Expenses Paid**

(This calculation includes any applicable

 

 

**Account Value**

**Account Value**

**During Period***

contingent deferred sales charge.)

 

 

**(07/01/05)**

**(12/31/05)**

**(07/01/05-12/31/05)**

One Year

1.30%

Actual

$1,000.00

$1,035.19

$9.90

Five Years

5.56%

Hypothetical (5% return

 

 

 

Ten Years

9.00%

before expenses)

$1,000.00

$1,015.48

$9.80

 

*Expenses are equal to the Class’s annualized expense ratio (1.93%), multiplied by the average account value****over the period, multiplied by 184/365 (to reflect the one-half year period). See Notes to Performance on page 42 for a description of the “Expense Example”.

 

**$10,000 invested over ten years**. Let’s say you invested $10,000 in Davis Series, Inc., Class B shares of Davis Appreciation & Income Fund (“DAIF-B”) on December 31, 1995 and converted to Class A shares on December 31, 2003. As the chart shows, by December 31, 2005, the value of your investment would have grown to $23,680 - a 136.80% increase on your initial investment. For comparison, the Standard and Poor's 500 Stock Index is also presented on the chart below.

 

The Standard & Poor’s 500 Stock Index is an unmanaged index of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The Index is adjusted for dividends, weighted towards stocks with large market capitalization, and represents approximately two-thirds of the total market value of all domestic common stocks.

 

Because Class B shares automatically convert to Class A shares after 8 years, the above graph and the “Ten Years” return for Class B reflect Class A performance for the period after conversion.

 

The performance data for Davis Appreciation & Income Fund, contained in this report represents past performance and assumes that all distributions were reinvested, and should not be considered as an indication of future performance from an investment in the Fund today. The investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

 

33

 

 

 

**DAVIS SERIES, INC.**

**DAVIS APPRECIATION & INCOME FUND**

**Class C Fund Performance**

 

**Average Annual Total Return**

 

**Expense Example**

 

 

 

**for the periods ended December 31, 2005**

 

**Beginning**

**Ending**

**Expenses Paid**

(This calculation includes any applicable

 

 

**Account Value**

**Account Value**

**During Period***

contingent deferred sales charge.)

 

 

**(07/01/05)**

**(12/31/05)**

**(07/01/05-12/31/05)**

One Year

4.34%

Actual

$1,000.00

$1,035.27

$9.85

Five Years

5.89%

Hypothetical (5% return

 

 

 

Life of Class (August 12, 1997

through December 31, 2005)

5.20%

before expenses)

$1,000.00

$1,015.53

$9.75

 

*Expenses are equal to the Class’s annualized expense ratio (1.92%), multiplied by the average account value****over the period, multiplied by 184/365 (to reflect the one-half year period). See Notes to Performance on page 42 for a description of the “Expense Example”.

 

**$10,000 invested at inception**. Let’s say you invested $10,000 in Davis Series, Inc., Class C shares of Davis Appreciation & Income Fund (“DAIF-C”) on August 12, 1997 (inception of class). As the chart shows, by December 31, 2005, the value of your investment would have grown to $15,304 - a 53.04% increase on your initial investment. For comparison, the Standard and Poor's 500 Stock Index is also presented on the chart below.

 

The Standard & Poor’s 500 Stock Index is an unmanaged index of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The Index is adjusted for dividends, weighted towards stocks with large market capitalization, and represents approximately two-thirds of the total market value of all domestic common stocks.

 

The performance data for Davis Appreciation & Income Fund, contained in this report, represents past performance and assumes that all distributions were reinvested, and should not be considered as an indication of future performance from an investment in the Fund today. The investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

 

34

 

 

 

**DAVIS SERIES, INC.**

**DAVIS APPRECIATION & INCOME FUND**

**Class Y Fund Performance**

 

**Average Annual Total Return**

 

**Expense Example**

 

 

 

**for the periods ended December 31, 2005**

 

**Beginning**

**Ending**

**Expenses Paid**

(There is no sales charge applicable

 

 

**Account Value**

**Account Value**

**During Period***

to this calculation.)

 

 

**(07/01/05)**

**(12/31/05)**

**(07/01/05-12/31/05)**

One Year

6.52%

Actual

$1,000.00

$1,041.24

$4.12

Five Years

7.07%

Hypothetical (5% return

 

 

 

Life of Class (November 13, 1996

through December 31, 2005)

8.75%

before expenses)

$1,000.00

$1,021.17

$4.08

 

*Expenses are equal to the Class’s annualized expense ratio (0.80%), multiplied by the average account value****over the period, multiplied by 184/365 (to reflect the one-half year period). See Notes to Performance on page 42 for a description of the “Expense Example”.

 

**$10,000 invested at inception**. Let’s say you invested $10,000 in Davis Series, Inc., Class Y shares of Davis Appreciation & Income Fund (“DAIF-Y”) on November 13, 1996 (inception of class). As the chart shows, by December 31, 2005, the value of your investment would have grown to $21,501 - a 115.01% increase on your initial investment. For comparison, the Standard and Poor's 500 Stock Index is also presented on the chart below.

 

The Standard & Poor’s 500 Stock Index is an unmanaged index of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The Index is adjusted for dividends, weighted towards stocks with large market capitalization, and represents approximately two-thirds of the total market value of all domestic common stocks.

 

The performance data for Davis Appreciation & Income Fund, contained in this report, represents past performance and assumes that all distributions were reinvested, and should not be considered as an indication of future performance from an investment in the Fund today. The investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

 

35

 

 

 

**DAVIS SERIES, INC.**

FUND OVERVIEW

**DAVIS REAL ESTATE FUND**

At December 31, 2005

 

PIE CHARTS – GRAPHIC OMITTED

 

**Portfolio Makeup**

 

 

**Sector Weightings**

 

 

**(% of Fund Net Assets)**

**%**

 

**(% of Stock Holdings)**

**%**

 

 

 

 

 

 

 

Common Stock

85.8%

 

Office Property REITS

26.0%

 

Short Term Investments,

 

 

Apartment REITS

15.0%

 

Preferred Stock, Other

 

 

Shopping Center REITS

14.6%

 

Assets, & Liabilities

14.2%

 

Real Estate Operations/

 

 

 

 

 

Development

11.1%

 

 

 

 

Diversified REITS

10.6%

 

 

 

 

Regional Mall REITS

10.1%

 

 

 

 

Warehouse & Industrial REITS

8.1%

 

 

 

 

Health Care REITS

2.3%

 

 

 

 

Mortgage REITS

1.6%

 

 

 

 

Transportation

0.6%

 

 

 

 

 

 

 

 

 

 

                                                                                              

**Top 10 Holdings**

**Sector**

**% of Fund**

**Net Assets**

SL Green Realty Corp.

Office Property REITS

4.90%

Forest City Enterprises, Inc., Class A

Real Estate Operations/Development

4.18%

ProLogis

Warehouse & Industrial REITS

4.17%

General Growth Properties, Inc.

Regional Mall REITS

4.06%

Kilroy Realty Corp.

Office Property REITS

3.79%

Alexandria Real Estate Equities, Inc. 

Office Property REITS

3.67%

Developers Diversified Realty Corp.

Shopping Center REITS

3.54%

Corporate Office Properties Trust

Office Property REITS

3.47%

Essex Property Trust, Inc.

Apartment REITS

3.34%

Kimco Realty Corp.

Shopping Center REITS

3.17%

 

 

36

 

 

 

**DAVIS SERIES, INC.**

**DAVIS REAL ESTATE FUND**

**Portfolio Activity – January 1, 2005 through December 31, 2005**

 

                                                                                      

**New Positions Added (01/01/05 - 12/31/05)**

(Highlighted positions are those greater than 1.00% of 12/31/05 total net assets)

 

 

 

 

**% of 12/31/05**

 

 

**Date of 1st**

**Fund**

**Security**

**Sector**

**Purchase**

**Net Assets**

AMB Property Corp.

Warehouse & Industrial REITS

07/18/05

2.18%

American Campus Communities, Inc.

Apartment REITS

06/28/05

2.10%

Archstone-Smith Trust

Apartment REITS

01/07/05

2.14%

Columbia Equity Trust, Inc.

Office Property REITS

06/28/05

1.06%

Cousins Properties, Inc.

Diversified REITS

01/12/05

2.99%

Derwent Valley Holdings PLC

Real Estate Operations/Development

06/16/05

0.58%

Florida East Coast Industries, Inc.

Transportation

09/15/05

0.55%

Hammerson PLC

Real Estate Operations/Development

06/16/05

0.51%

Pennsylvania REIT

Regional Mall REITS

08/04/05

0.80%

Slough Estates PLC

Real Estate Operations/Development

06/16/05

0.52%

Spirit Finance Corp.

Diversified REITS

10/28/05

0.47%

Ventas, Inc.

Health Care REITS

06/15/05

1.98%

 

 

 

 

                                                                                                                                                                                                                   

**Positions Closed (01/01/05 - 12/31/05)**

(Gains and losses greater than $5,000,000 are highlighted)

 

 

 

**Date of**

**Realized**

**Security**

**Sector**

**Final Sale**

**Gain (Loss)**

Arden Realty, Inc.

Office Property REITS

12/29/05

$

8,059,578

 

Brandywine Realty Trust

Office Property REITS

11/21/05

 

(556,436

)

Capital Automotive REIT

Diversified REITS

10/17/05

 

5,859,183

 

Catellus Development Corp.

Warehouse & Industrial REITS

07/08/05

 

8,994,210

 

iStar Financial Inc.

Diversified REITS

08/11/05

 

1,400,462

 

Parkway Properties, Inc.

Office Property REITS

02/03/05

 

2,151,931

 

Plum Creek Timber Co., Inc.

Forestry REITS

05/24/05

 

4,675,149

 

Starwood Hotels & Resorts Worldwide, Inc.

Hotels & Lodging

05/04/05

 

4,055,986

 

WCI Communities, Inc.

Residential/Commercial Building

08/15/05

 

5,404,034

 

 

 

 

 

 

 

 

 

37

 

 

 

**DAVIS SERIES, INC.**

**DAVIS REAL ESTATE FUND**

**Class A Fund Performance**

 

**Average Annual Total Return**

 

**Expense Example**

 

 

 

**for the periods ended December 31, 2005**

 

**Beginning**

**Ending**

**Expenses Paid**

(This calculation includes an initial 

 

 

**Account Value**

**Account Value**

**During Period***

sales charge of 4.75%.)

 

 

**(07/01/05)**

**(12/31/05)**

**(07/01/05-12/31/05)**

One Year

7.40%

Actual

$1,000.00

$1,086.77

$5.68

Five Years

17.10%

Hypothetical (5% return

 

 

 

Ten Years

13.99%

before expenses)

$1,000.00

$1,019.76

$5.50

 

*Expenses are equal to the Class’s annualized expense ratio (1.08%), multiplied by the average account value****over the period, multiplied by 184/365 (to reflect the one-half year period). See Notes to Performance on page 42 for a description of the “Expense Example”.

 

**$10,000 invested over ten years**. Let’s say you invested $10,000 in Davis Series, Inc., Class A shares of Davis Real Estate Fund (“DREF-A”) on December 31, 1995 and paid a 4.75% sales charge. As the chart shows, by December 31, 2005, the value of your investment would have grown to $37,054 - a 270.54% increase on your initial investment. For comparison, the Standard & Poor’s 500 Stock Index and the Dow Jones Wilshire Real Estate Securities Index are also presented on the chart below.

The Standard & Poor’s 500 Stock Index is an unmanaged index of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The Index is adjusted for dividends, weighted towards stocks with large market capitalization, and represents approximately two-thirds of the total market value of all domestic common stocks.

 

The Dow Jones Wilshire Real Estate Securities Index is a broad measure of the performance of publicly traded real estate securities, such as Real Estate Investment Trusts (REITs) and Real Estate Operating Companies (REOCs).  Investments cannot be made directly in the Index.  The index used includes net dividends reinvested.

 

The performance data for Davis Real Estate Fund, contained in this report, represents past performance and assumes that all distributions were reinvested, and should not be considered as an indication of future performance from an investment in the Fund today. The investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

 

38

 

 

 

**DAVIS SERIES, INC.**

**DAVIS REAL ESTATE FUND**

**Class B Fund Performance**

 

**Average Annual Total Return**

 

**Expense Example**

 

 

 

**for the periods ended December 31, 2005**

 

**Beginning**

**Ending**

**Expenses Paid**

(This calculation includes any applicable

 

 

**Account Value**

**Account Value**

**During Period***

contingent deferred sales charge.)

 

 

**(07/01/05)**

**(12/31/05)**

**(07/01/05-12/31/05)**

One Year

7.92%

Actual

$1,000.00

$1,082.55

$9.82

Five Years

17.14%

Hypothetical (5% return

 

 

 

Ten Years

13.77%

before expenses)

$1,000.00

$1,015.78

$9.50

 

*Expenses are equal to the Class’s annualized expense ratio (1.87%), multiplied by the average account value****over the period, multiplied by 184/365 (to reflect the one-half year period). See Notes to Performance on page 42 for a description of the “Expense Example”.

 

**$10,000 invested over ten years**. Let’s say you invested $10,000 in Davis Series, Inc., Class B shares of Davis Real Estate Fund (“DREF-B”) on December 31, 1995 and converted to Class A shares on December 31, 2003. As the chart shows, by December 31, 2005, the value of your investment would have grown to $36,361 - a 263.61% increase on your initial investment. For comparison, the Standard & Poor’s 500 Stock Index and the Dow Jones Wilshire Real Estate Securities Index are also presented on the chart below.

The Standard & Poor’s 500 Stock Index is an unmanaged index of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The Index is adjusted for dividends, weighted towards stocks with large market capitalization, and represents approximately two-thirds of the total market value of all domestic common stocks.

 

The Dow Jones Wilshire Real Estate Securities Index is a broad measure of the performance of publicly traded real estate securities, such as Real Estate Investment Trusts (REITs) and Real Estate Operating Companies (REOCs).  Investments cannot be made directly in the Index.  The index used includes net dividends reinvested.

 

Because Class B shares automatically convert to Class A shares after 8 years, the above graph and the “Ten Years” return for Class B reflect Class A performance for the period after conversion.

 

The performance data for Davis Real Estate Fund, contained in this report, represents past performance and assumes that all distributions were reinvested, and should not be considered as an indication of future performance from an investment in the Fund today. The investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

 

39

 

 

 

**DAVIS SERIES, INC.**

**DAVIS REAL ESTATE FUND**

**Class C Fund Performance**

 

**Average Annual Total Return**

 

**Expense Example**

 

 

 

**for the periods ended December 31, 2005**

 

**Beginning**

**Ending**

**Expenses Paid**

(This calculation includes any applicable

 

 

**Account Value**

**Account Value**

**During Period***

contingent deferred sales charge.)

 

 

**(07/01/05)**

**(12/31/05)**

**(07/01/05-12/31/05)**

One Year

10.93%

Actual

$1,000.00

$1,082.35

$9.76

Five Years

17.37%

Hypothetical (5% return

 

 

 

Life of Class (August 13, 1997

through December 31, 2005)

10.84%

before expenses)

$1,000.00

$1,015.83

$9.45

 

*Expenses are equal to the Class’s annualized expense ratio (1.86%), multiplied by the average account value****over the period, multiplied by 184/365 (to reflect the one-half year period). See Notes to Performance on page 42 for a description of the “Expense Example”.

 

**$10,000 invested at inception**. Let’s say you invested $10,000 in Davis Series, Inc., Class C shares of Davis Real Estate Fund (“DREF-C”) on August 13, 1997 (inception of class). As the chart shows, by December 31, 2005, the value of your investment would have grown to $23,707 - a 137.07% increase on your initial investment. For comparison, the Standard & Poor’s 500 Stock Index and the Dow Jones Wilshire Real Estate Securities Index are also presented on the chart below.

The Standard & Poor’s 500 Stock Index is an unmanaged index of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The Index is adjusted for dividends, weighted towards stocks with large market capitalization, and represents approximately two-thirds of the total market value of all domestic common stocks.

 

The Dow Jones Wilshire Real Estate Securities Index is a broad measure of the performance of publicly traded real estate securities, such as Real Estate Investment Trusts (REITs) and Real Estate Operating Companies (REOCs).  Investments cannot be made directly in the Index.  The index used includes net dividends reinvested.

 

The performance data for Davis Real Estate Fund, contained in this report, represents past performance and assumes that all distributions were reinvested, and should not be considered as an indication of future performance from an investment in the Fund today. The investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

 

40

 

 

 

**DAVIS SERIES, INC.**

**DAVIS REAL ESTATE FUND**

**Class Y Fund Performance**

 

**Average Annual Total Return**

 

**Expense Example**

 

 

 

**for the periods ended December 31, 2005**

 

**Beginning**

**Ending**

**Expenses Paid**

(There is no sales charge applicable

 

 

**Account Value**

**Account Value**

**During Period***

to this calculation.)

 

 

**(07/01/05)**

**(12/31/05)**

**(07/01/05-12/31/05)**

One Year

13.20%

Actual

$1,000.00

$1,088.64

$3.90

Five Years

18.71%

Hypothetical (5% return

 

 

 

Life of Class (November 8, 1996

through December 31, 2005)

13.98%

before expenses)

$1,000.00

$1,021.48

$3.77

 

*Expenses are equal to the Class’s annualized expense ratio (0.74%), multiplied by the average account value****over the period, multiplied by 184/365 (to reflect the one-half year period). See Notes to Performance on page 42 for a description of the “Expense Example”.

 

**$10,000 invested at inception**. Let’s say you invested $10,000 in Davis Series, Inc., Class Y shares of Davis Real Estate Fund (“DREF-Y”) on November 8, 1996 (inception of class). As the chart shows, by December 31, 2005, the value of your investment would have grown to $33,124 - a 231.24% increase on your initial investment. For comparison, the Standard & Poor’s 500 Stock Index and the Dow Jones Wilshire Real Estate Securities Index are also presented on the chart below.

The Standard & Poor’s 500 Stock Index is an unmanaged index of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The Index is adjusted for dividends, weighted towards stocks with large market capitalization, and represents approximately two-thirds of the total market value of all domestic common stocks.

 

The Dow Jones Wilshire Real Estate Securities Index is a broad measure of the performance of publicly traded real estate securities, such as Real Estate Investment Trusts (REITs) and Real Estate Operating Companies (REOCs).  Investments cannot be made directly in the Index.  The index used includes net dividends reinvested.

 

The performance data for Davis Real Estate Fund, contained in this report, represents past performance and assumes that all distributions were reinvested, and should not be considered as an indication of future performance from an investment in the Fund today. The investment return and principal value will fluctuate so that shares may be worth more or less than their original cost when redeemed. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

 

41

 

 

 

**DAVIS SERIES, INC.**

**Notes to Performance**

 

**The following disclosure provides important information regarding the Funds’ Expense Example, which appears in each Class’s Fund Performance section in this Annual Report.  Please refer to this information when reviewing the Expense Example for each Class.**

 

**Example**

 

As a shareholder of the Funds, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchases; and (2) ongoing costs, including advisory and administrative fees, distribution and/or service  (12b-1) fees, and other Fund expenses.  The Expense Example is intended to help you understand your ongoing costs (in dollars) of investing in each Fund and to compare these costs with the ongoing costs of investing in other mutual funds.  The Expense Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for each class is from 07/01/05 to 12/31/05. Please note that the Expense Example is general and does not reflect certain transaction or account specific costs, which may increase your total costs of investing in the Funds. If these transaction or account specific costs were included in the Expense Example,the expenses would have been higher.

 

**Actual Expenses**

 

The information represented in the row entitled “Actual” provides information about actual account values and actual expenses.  You may use the information in this row, together with the amount you invested, to estimate the expenses that you paid over the period.  Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During Period” to estimate the expenses you paid for on your account during this period. 

 

**Hypothetical Example for Comparison Purposes**

 

The information represented in the row entitled “Hypothetical” provides information about hypothetical account values and hypothetical expenses based on the Funds’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Funds’ actual return.  The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.  You may use this information to compare the ongoing costs of investing in the Funds and other funds.  To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.  

 

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads).  Therefore, the information in the row entitled “Hypothetical” is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.  In addition, if these transactional costs were included, your costs would have been higher.

 

 

42

 

 

 

**DAVIS SERIES, INC.**

SCHEDULE OF INVESTMENTS AT DECEMBER 31, 2005

**DAVIS OPPORTUNITY FUND**

 

 

**Value**

**Shares**

**Security**

**(Note 1)**

**COMMON STOCK – (97.08%)**

 

**AUTOMOBILES & COMPONENTS – (5.18%)**

 

 

 

 

246,300

 

Autoliv, Inc. 

$

11,186,946

 

 

415,700

 

Harley-Davidson, Inc. 

 

21,404,393

 

 

211,000

 

Lear Corp. 

 

6,005,060

 

 

 

 

 

 

38,596,399

 

**AUTOMOTIVE RETAIL – (6.28%)**

 

 

 

 

460,500

 

Advance Auto Parts, Inc.*

 

20,013,330

 

 

1,230,000

 

AutoNation, Inc.*

 

26,727,900

 

 

 

 

 

 

46,741,230

 

**CAPITAL GOODS – (7.13%)**

 

 

 

 

178,500

 

American Standard Cos., Inc. 

 

7,131,075

 

 

181,500

 

Franklin Electric Co., Inc. 

 

7,168,343

 

 

263,900

 

Hughes Supply, Inc. 

 

9,460,815

 

 

754,500

 

Robbins & Myers, Inc. (b)

 

15,354,075

 

 

16,910

 

Tae Young Corp. 

 

1,187,723

 

 

442,500

 

Tyco International Ltd. 

 

12,770,550

 

 

 

 

 

 

53,072,581

 

**CAPITAL MARKETS – (3.98%)**

 

 

 

 

947,500

 

E*TRADE Financial Corp.*

 

19,764,850

 

 

33,686

 

Julius Baer Holding, Ltd. AG

 

2,386,642

 

 

62,600

 

Legg Mason, Inc. 

 

7,492,594

 

 

 

 

 

 

29,644,086

 

**COMMERCIAL BANKS – (1.93%)**

 

 

 

 

418,000

 

Commerce Bancorp, Inc. 

 

14,383,380

 

**COMMERCIAL SERVICES & SUPPLIES – (0.43%)**

 

 

 

 

47,500

 

D&B Corp.*

 

3,180,600

 

**CONSUMER DURABLES & APPAREL – (6.69%)**

 

 

 

 

171,300

 

Blount International, Inc.*

 

2,728,809

 

 

319,300

 

Garmin Ltd. 

 

21,123,292

 

 

336,764

 

Hunter Douglas NV

 

18,331,990

 

 

87,100

 

Mohawk Industries, Inc.*

 

7,575,958

 

 

 

 

 

 

49,760,049

 

**CONSUMER FINANCE – (2.10%)**

 

 

 

 

475,300

 

First Marblehead Corp. 

 

15,618,358

 

**CONSUMER SERVICES – (2.06%)**

 

 

 

 

1,281,000

 

ServiceMaster Co. 

 

15,307,950

 

**DIVERSIFIED FINANCIAL SERVICES – (6.33%)**

 

 

 

 

184,600

 

Groupe Bruxelles Lambert S.A. 

 

18,106,695

 

 

178,741

 

Pargesa Holding S.A., Bearer Shares

 

15,261,779

 

 

505,900

 

Power Corp. of Canada

 

13,778,480

 

 

 

 

 

 

47,146,954

 

 

 

43

 

 

 

**DAVIS SERIES, INC.**

SCHEDULE OF INVESTMENTS AT DECEMBER 31, 2005

**DAVIS OPPORTUNITY FUND – (Continued)**

 

 

**Value**

**Shares**

**Security**

**(Note 1)**

**COMMON STOCK – (Continued)**

 

**ENERGY – (2.23%)**

 

 

 

 

28,300

 

Tenaris S.A., ADR

$

3,240,350

 

 

191,500

 

Transocean Inc.*

 

13,345,635

 

 

 

 

 

 

16,585,985

 

**FOOD & STAPLES RETAILING – (0.56%)**

 

 

 

 

85,000

 

Costco Wholesale Corp. 

 

4,199,425

 

**FOOD, BEVERAGE, & TOBACCO – (2.34%)**

 

 

 

 

145,625

 

Heineken Holding NV

 

4,279,103

 

 

4,400

 

Lotte Chilsung Beverage Co., Ltd. 

 

4,270,070

 

 

5,160

 

Lotte Confectionery Co., Ltd. 

 

6,105,119

 

 

35,070

 

Nong Shim Holdings Co., Ltd. 

 

2,775,486

 

 

 

 

 

 

17,429,778

 

**GENERAL MERCHANDISE STORE – (0.93%)**

 

 

 

 

660,500

 

99 Cents Only Stores*

 

6,908,830

 

**HEALTH CARE EQUIPMENT & SERVICES – (8.55%)**

 

 

 

 

189,200

 

AmerisourceBergen Corp. 

 

7,832,880

 

 

283,000

 

Cardinal Health, Inc. 

 

19,456,250

 

 

109,400

 

Fisher Scientific International, Inc.*

 

6,767,484

 

 

197,600

 

IDEXX Laboratories, Inc.*

 

14,221,272

 

 

193,000

 

Lincare Holdings Inc.*

 

8,093,455

 

 

107,300

 

Zimmer Holdings, Inc.* 

 

7,236,312

 

 

 

 

 

 

63,607,653

 

**HOUSEHOLD & PERSONAL PRODUCTS – (0.63%)**

 

 

 

 

14,900

 

Amorepacific Corp. 

 

4,657,862

 

**INSURANCE BROKERS – (4.10%)**

 

 

 

 

582,000

 

Brown & Brown, Inc. 

 

17,774,280

 

 

401,500

 

Marsh & McLennan Cos, Inc. 

 

12,751,640

 

 

 

 

 

 

30,525,920

 

**INTERNET RETAIL – (1.61%)**

 

 

 

 

499,500

 

Expedia, Inc.*

 

11,965,522

 

**LIFE & HEALTH INSURANCE – (0.55%)**

 

 

 

 

88,000

 

AFLAC Inc. 

 

4,084,960

 

**MATERIALS – (3.25%)**

 

 

 

 

324,600

 

Huntsman Corp.*

 

5,589,612

 

 

105,000

 

Sealed Air Corp.*

 

5,897,850

 

 

200,500

 

Sigma-Aldrich Corp. 

 

12,681,625

 

 

 

 

 

 

24,169,087

 

**MEDIA – (7.50%)**

 

 

 

 

463,000

 

EchoStar Communications Corp., Class A*

 

12,582,025

 

 

330,000

 

Lagardere S.C.A. 

 

25,394,653

 

 

 

44

 

 

 

**DAVIS SERIES, INC.**

SCHEDULE OF INVESTMENTS AT DECEMBER 31, 2005

**DAVIS OPPORTUNITY FUND – (Continued)**

 

 

**Value**

**Shares**

**Security**

**(Note 1)**

**COMMON STOCK – (Continued)**

 

**MEDIA – (Continued)**

 

 

 

 

110,500

 

NTL Inc.*

$

7,515,658

 

 

955,000

 

WPP Group PLC

 

10,334,964

 

 

 

 

 

 

55,827,300

 

**PROPERTY & CASUALTY INSURANCE – (1.79%)**

 

 

 

 

86,000

 

Ambac Financial Group, Inc. 

 

6,627,160

 

 

71,150

 

Cincinnati Financial Corp.

 

3,175,425

 

 

50,000

 

FPIC Insurance Group, Inc.*

 

1,735,250

 

 

5,600

 

Markel Corp.*

 

1,775,480

 

 

 

 

 

 

13,313,315

 

**REINSURANCE – (1.79%)**

 

 

 

 

42,000

 

Everest Re Group, Ltd. 

 

4,214,700

 

 

135,625

 

Transatlantic Holdings, Inc. 

 

9,114,000

 

 

 

 

 

 

13,328,700

 

**SOFTWARE & SERVICES – (3.47%)**

 

 

 

 

224,700

 

Iron Mountain, Inc.* 

 

9,486,834

 

 

581,000

 

Reynolds & Reynolds Co., Class A

 

16,308,670

 

 

 

 

 

 

25,795,504

 

**SPECIALTY STORES – (2.23%)**

 

 

 

 

528,000

 

Office Depot, Inc.*

 

16,579,200

 

**TECHNOLOGY HARDWARE & EQUIPMENT – (6.27%)**

 

 

 

 

401,900

 

Agilent Technologies, Inc.*

 

13,379,251

 

 

312,000

 

Lexmark International, Inc., Class A*

 

13,986,960

 

 

786,300

 

Molex Inc., Class A

 

19,284,007

 

 

 

 

 

 

46,650,218

 

**TELECOMMUNICATION SERVICES – (2.74%)**

 

 

 

 

3,308,600

 

Covad Communications Group, Inc.*

 

3,242,428

 

 

343,300

 

SK Telecom Co., Ltd., ADR

 

6,965,557

 

 

429,600

 

Telewest Global, Inc.*

 

10,222,332

 

 

 

 

 

 

20,430,317

 

**THRIFT & MORTGAGE FINANCE – (2.23%)**

 

 

 

 

252,000

 

Golden West Financial Corp. 

 

16,632,000

 

**UTILITIES – (2.20%)**

 

 

 

 

365,000

 

Sempra Energy

 

16,366,600

 

 

 

 

 

 

 

 

 

 

 

 

Total Common Stock – (identified cost $569,816,293)

 

722,509,763

 

 

 

45

 

 

 

**DAVIS SERIES, INC.**

SCHEDULE OF INVESTMENTS AT DECEMBER 31, 2005

**DAVIS OPPORTUNITY FUND  – (Continued)**

 

 

**Value**

**Principal**

**Security**

**(Note 1)**

**CONVERTIBLE BONDS – (0.79%)**

 

**TELECOMMUNICATION SERVICES – (0.79%)**

 

 

 

$

5,600,000

 

Level 3 Communications, Inc., Conv. Sr. Notes, 10.00%, 05/01/11 (c)

 

 

 

 

 

 

(identified cost $5,600,000)

$

5,897,920

 

 

**SHORT TERM INVESTMENTS – (1.99%)**

 

 

6,159,000

 

Banc of America Securities LLC Joint Repurchase Agreement, 4.28%,

 

 

 

 

 

 

01/03/06, dated 12/30/05, repurchase value of $6,161,929

 

 

 

 

 

 

(collateralized by: U.S. Government agency mortgages in a pooled 

 

 

 

 

 

 

cash account, 4.21%-6.50%, 05/01/15-09/01/44, total market

 

 

 

 

 

 

value $6,282,180)

 

6,159,000

 

 

8,660,000

 

Nomura Securities International, Inc. Joint Repurchase Agreement, 4.28%,

 

 

 

 

 

 

01/03/06, dated 12/30/05, repurchase value of $8,664,118

 

 

 

 

 

 

(collateralized by: U.S. Government agency obligations in a pooled 

 

 

 

 

 

 

cash account, 0%-6.625%, 01/30/06-12/20/027, total market

 

 

 

 

 

 

value $8,833,200)

 

8,660,000

 

 

 

 

 

Total Short Term Investments – (identified cost $14,819,000)

 

14,819,000

 

 

 

 

 

Total Investments – (99.86%) – (identified cost $590,235,293) – (a)

 

743,226,683

 

 

 

 

Other Assets Less Liabilities – (0.14%)

 

1,054,040

 

 

 

 

Net Assets – (100%)

$

744,280,723

 

 

*Non-Income Producing Security.

 

(a)    Aggregate cost for Federal Income Tax purposes is $602,366,641.  At December 31, 2005 unrealized appreciation (depreciation) of securities for Federal Income Tax purposes is as follows:

 

 

 

 

Unrealized appreciation

$

159,240,888

 

 

 

 

Unrealized depreciation

 

(18,380,846

)

 

 

 

Net unrealized appreciation

$

140,860,042

 

 

(b)    Affiliated company.  Represents ownership of at least 5% of the voting securities of the issuer and is an affiliate, as defined in the Investment Company Act of 1940, at or during the year ended December 31, 2005.  The aggregate fair value of the securities of affiliated companies held by the Fund as of December 31, 2005, amounts to $15,354,075.  Transactions during the period in which the issuers were affiliates are as follows:

 

Security

Shares

December 31, 2004

Gross

Additions

Gross

Reductions

Shares

December 31, 2005

 

 

Dividend

Income

 

Robbins & Myers, Inc.

 

–

 

754,500

 

–

 

754,500

 

$

115,913

 

(c)

Illiquid Security – See Note 9 of the Notes to Financial Statements.

 

***See Notes to Financial Statements***

 

46

 

 

 

**DAVIS SERIES, INC.**

SCHEDULE OF INVESTMENTS AT DECEMBER 31, 2005

**DAVIS GOVERNMENT BOND FUND**

 
 
 

 

**Value**

 
**Principal**

**Security**

**(Note 1)**

 
**MORTGAGES – (41.71%)**

 

**FANNIE MAE POOLS – (19.37%)**

 

 

 

$

409,425

 

6.324%, 10/01/08 Pool No. 380999

$

413,912

 

 

1,503,505

 

5.00%, 08/01/11 Pool No. 357609

 

1,502,182

 

 

5,726,556

 

6.00%, 09/01/17 Pool No. 665776

 

5,857,751

 

 

1,930,073

 

4.884%, 03/01/35 Pool No. 773269 (b)

 

1,916,409

 

 

 

 

 

 

 

 

 

 

 

Total FANNIE MAE – (identified cost $9,847,543)

 

9,690,254

 

 

**FREDDIE MAC POOLS – (22.34%)**

 

 

 

 

168,988

 

5.50%, 10/01/06 Pool No. M90680

 

169,306

 

 

1,653,216

 

4.50%, 03/01/08 Pool No. M90803

 

1,645,777

 

 

1,593,861

 

3.50%, 08/01/08 Pool No. M90830

 

1,553,776

 

 

1,971,164

 

3.00%, 04/01/10 Pool No. M90982

 

1,867,796

 

 

1,872,846

 

5.00%, 05/01/10 Pool No. M90980

 

1,868,276

 

 

987,773

 

3.50%, 04/01/12 Pool No. M80974

 

940,607

 

 

996,543

 

3.00%, 10/01/10 Pool No. M91001

 

944,284

 

 

1,032,675

 

6.50%, 01/01/15 Pool No. G11063

 

1,059,752

 

 

1,100,409

 

6.00%, 10/01/16 Pool No. E01054

 

1,123,694

 

 

 

 

 

 

 

 

 

 

 

Total FREDDIE MAC – (identified cost $11,367,002)

 

11,173,268

 

 

 

 

 

 

 

 

 

 

 

Total Mortgages – (identified cost $21,214,545)

 

20,863,522

 

 

**GOVERNMENT AGENCY NOTES – (52.38%)**

 

 

 

 

5,000,000

 

Fannie Mae, 7.125%, 03/15/07

 

5,139,400

 

 

2,000,000

 

Fannie Mae, 6.00%, 05/15/08

 

2,057,460

 

 

5,000,000

 

Federal Farm Credit Bank, 4.26%, 01/18/06 (b)

 

4,999,850

 

 

1,000,000

 

Federal Home Loan Bank, 2.60%, 09/26/06

 

985,290

 

 

1,000,000

 

Federal Home Loan Bank, 4.00%, 06/13/08

 

983,990

 

 

300,000

 

Federal Home Loan Bank, 5.37%, 07/12/11

 

298,686

 

 

5,000,000

 

Freddie Mac, 5.50%, 07/15/06

 

5,025,200

 

 

1,500,000

 

Freddie Mac, 3.00%, 09/29/06

 

1,482,915

 

 

1,000,000

 

Freddie Mac, 3.00%, 11/17/06

 

986,270

 

 

4,340,000

 

Freddie Mac, 3.40%, 10/15/07

 

4,242,263

 

 

 

 
 

 

 

Total Government Agency Notes – (identified cost $26,558,129)

 

26,201,324

 

 

 

47

 

 

 

**DAVIS SERIES, INC.**  

SCHEDULE OF INVESTMENTS AT DECEMBER 31, 2005

**DAVIS GOVERNMENT BOND FUND – (Continued)**

 
 
 

 

**Value**

 
**Principal**

**Security**

**(Note 1)**

 
**SHORT TERM INVESTMENTS – (6.00%)**

 

$

1,247,000

 

Banc of America Securities LLC Joint Repurchase Agreement, 4.28%,

 

 

 

 

 

 

01/03/06, dated 12/30/05, repurchase value of $1,247,593

 

 

 

 

 

 

(collateralized by: U.S. Government agency mortgages in a pooled 

 

 

 

 

 

 

cash account, 4.21%-6.50%, 05/01/15-09/01/44, total market

 

 

 

 

 

 

value $1,271,940)

$

1,247,000

 

 

1,754,000

 

Nomura Securities International, Inc. Joint Repurchase Agreement, 4.28%,

 

 

 

 

 

 

01/03/06, dated 12/30/05, repurchase value of $1,754,834

 

 

 

 

 

 

(collateralized by: U.S. Government agency obligations in a pooled 

 

 

 

 

 

 

cash account, 0%-6.625%, 01/30/06-12/20/027, total market

 

 

 

 

 

 

value $1,789,080)

 

1,754,000

 

 

 

 

 

Total Short Term Investments – (identified cost $3,001,000)

 

3,001,000

 

 

 

 

 

Total Investments – (100.09%) – (identified cost $50,773,674) – (a)

 

50,065,846

 

 

 

 

Liabilities Less Other Assets – (0.09%)

 

(45,246

)

 

 

 

Net Assets – (100.00%)

$

50,020,600

 

 

(a)    Aggregate cost for Federal Income Tax purposes is $50,773,674.  At December 31, 2005 unrealized appreciation (depreciation) of securities for Federal Income Tax purposes is as follows:

 

 

 

 

Unrealized appreciation

$

10,725

 

 

 

 

Unrealized depreciation

 

(718,553

)

 

 

 

Net unrealized depreciation

$

(707,828

)

 

(b)    The interest rates on floating rate securities, shown as of December 31, 2005, may change daily or less frequently and are based on indices of market interests rates.

 

***See Notes to Financial Statements***

 

 

48

 

 

 

**DAVIS SERIES, INC.**

SCHEDULE OF INVESTMENTS AT DECEMBER 31, 2005 

**DAVIS GOVERNMENT MONEY MARKET FUND**

 

 

**Value**

 
**Principal**

 

**(Note 1)**

 
**FANNIE MAE – (12.05%)**

 
$

1,000,000

 

5.875%, 02/02/06

$

1,001,694

 

 

7,355,000

 

2.03%, 02/09/06

 

7,338,909

 

 

2,000,000

 

2.125%, 02/10/06

 

1,995,111

 

 

5,760,000

 

5.50%, 02/15/06

 

5,768,943

 

 

8,500,000

 

2.25%, 02/28/06

 

8,472,168

 

 

1,500,000

 

2.05%, 03/29/06

 

1,491,344

 

 

8,730,000

 

2.35%, 04/29/06

 

8,689,058

 

 

10,000,000

 

4.20%, 05/09/06 (b)

 

9,999,304

 

 

5,000,000

 

2.50%, 05/10/06

 

4,972,753

 

 

3,235,000

 

2.25%, 05/15/06

 

3,207,440

 

 

1,000,000

 

2.41%, 05/26/06

 

992,874

 

 

2,475,000

 

3.02%, 06/01/06

 

2,464,309

 

 

500,000

 

2.00%, 06/09/06

 

494,391

 

 

5,000,000

 

1.75%, 06/16/06

 

4,945,699

 

 

 

 

 

 

 

 

 

 

 

Total FANNIE MAE – (identified cost $61,833,997)

 

61,833,997

 

 

**FEDERAL FARM CREDIT BANK – (3.21%)**

 
 

2,000,000

 

2.09%, 01/30/06

 

1,996,677

 

 

500,000

 

2.25%, 01/30/06

 

499,464

 

 

3,000,000

 

2.00%, 03/08/06

 

2,989,750

 

 

1,000,000

 

2.88%, 06/29/06

 

995,773

 

 

10,000,000

 

4.23%, 07/14/06 (b)

 

10,000,000

 

 

 

 

 

 

 

 

 

 

 

Total Federal Farm Credit Bank – (identified cost $16,481,664)

 

16,481,664

 

 

**FEDERAL HOME LOAN BANK – (31.98%)**

 
 

1,000,000

 

1.75%, 01/12/06

 

999,484

 

 

3,000,000

 

1.75%, 01/12/06

 

2,998,455

 

 

905,000

 

2.60%, 01/27/06 (c)

 

904,070

 

 

5,250,000

 

2.08%, 02/03/06

 

5,239,734

 

 

2,910,000

 

2.00%, 02/13/06

 

2,903,997

 

 

7,000,000

 

2.50%, 02/24/06

 

6,981,456

 

 

5,000,000

 

2.50%, 03/15/06 

 

4,983,969

 

 

4,500,000

 

3.00%, 03/17/06

 

4,491,759

 

 

5,000,000

 

4.00%, 03/28/06

 

5,000,000

 

 

5,000,000

 

1.86%, 04/07/06

 

4,971,736

 

 

2,500,000

 

2.50%, 04/11/06

 

2,487,352

 

 

8,000,000

 

4.00%, 04/21/06

 

7,999,426

 

 

8,000,000

 

3.75%, 04/25/06 (d)

 

8,000,000

 

 

1,500,000

 

2.02%, 04/28/06

 

1,491,757

 

 

 

49

 

 

 

**DAVIS SERIES, INC.**

SCHEDULE OF INVESTMENTS AT DECEMBER 31, 2005 

**DAVIS GOVERNMENT MONEY MARKET FUND – (Continued)**

 

 

**Value**

 
**Principal**

 

**(Note 1)**

 
**FEDERAL HOME LOAN BANK – (Continued)**

 
$

5,050,000

 

4.04%, 04/28/06 (b)

$

5,048,748

 

 

3,000,000

 

2.25%, 05/15/06

 

2,978,456

 

 

7,940,000

 

5.375%, 05/15/06

 

7,974,356

 

 

5,040,000

 

2.875%, 05/23/06

 

5,014,298

 

 

1,500,000

 

4.00%, 05/30/06

 

1,497,484

 

 

1,040,000

 

3.00%, 06/01/06

 

1,035,864

 

 

1,500,000

 

2.58%, 06/15/06

 

1,488,301

 

 

1,270,000

 

3.85%, 06/22/06 (d)

 

1,270,000

 

 

1,000,000

 

2.25%, 06/23/06

 

992,257

 

 

22,500,000

 

3.80%, 07/21/06 (d)

 

22,500,000

 

 

10,000,000

 

2.30%, 07/28/06

 

9,884,428

 

 

15,000,000

 

4.15%, 08/02/06 (b)

 

15,000,000

 

 

30,000,000

 

4.094%, 11/09/06 (b)

 

30,000,000

 

 

 

 

 

 

 

 

 

 

 

Total Federal Home Loan Bank – (identified cost $164,137,387)

 

164,137,387

 

 

**FREDDIE MAC – (11.38%)**

 
 

10,500,000

 

5.25%, 01/15/06

 

10,504,699

 

 

3,165,000

 

5.95%, 01/19/06

 

3,168,529

 

 

6,000,000

 

2.15%, 02/10/06

 

5,988,734

 

 

4,000,000

 

2.25%, 02/17/06

 

3,991,812

 

 

4,200,000

 

6.28%, 03/06/06

 

4,220,663

 

 

5,000,000

 

2.50%, 05/05/06

 

4,968,567

 

 

5,000,000

 

2.75%, 05/05/06

 

4,975,192

 

 

2,000,000

 

2.75%, 05/05/06

 

1,988,461

 

 

4,500,000

 

2.60%, 05/12/06

 

4,470,966

 

 

4,295,000

 

2.15%, 06/02/06

 

4,262,936

 

 

1,000,000

 

2.50%, 06/12/06 (d)

 

992,406

 

 

2,000,000

 

1.875%, 06/30/06

 

1,978,896

 

 

3,000,000

 

2.09%, 07/06/06

 

2,962,800

 

 

1,000,000

 

2.03%, 07/07/06

 

988,145

 

 

2,000,000

 

2.00%, 07/14/06

 

1,975,126

 

 

1,000,000

 

2.45%, 12/11/06

 

978,773

 

 

 

 

 

 

 

 

 

 

 

Total FREDDIE MAC – (identified cost $58,416,705)

 

58,416,705

 

 

 

50

 

 

 

**DAVIS SERIES, INC.**

SCHEDULE OF INVESTMENTS AT DECEMBER 31, 2005 

**DAVIS GOVERNMENT MONEY MARKET FUND – (Continued)**

 

 

**Value**

**Principal**

 

**(Note 1)**

**REPURCHASE AGREEMENTS – (34.89%)**

 

$

74,431,000

 

Banc of America Securities LLC Joint Repurchase Agreement, 4.28%,

 

 

 

 

 

 

01/03/06, dated 12/30/05, repurchase value of $74,466,396

 

 

 

 

 

 

(collateralized by: U.S. Government agency mortgages in a pooled 

 

 

 

 

 

 

cash account, 4.21%-6.50%, 05/01/15-09/01/44, total market

 

 

 

 

 

 

value $75,919,620)

$

74,431,000

 

 

104,643,000

 

Nomura Securities International, Inc. Joint Repurchase Agreement, 4.28%,

 

 

 

 

 

 

01/03/06, dated 12/30/05, repurchase value of $104,692,764

 

 

 

 

 

 

(collateralized by: U.S. Government agency obligations in a pooled 

 

 

 

 

 

 

cash account, 0%-6.625%, 01/30/06-12/20/027, total market

 

 

 

 

 

 

value $106,735,860)

 

104,643,000

 

 

 

 

 

Total Repurchase Agreements – (identified cost $179,074,000)

 

179,074,000

 

 

 

 

 

Total Investments – (93.51%) – (identified cost $479,943,753) – (a)

 

479,943,753

 

 

 

 

Other Assets Less Liabilities – (6.49%)

 

33,276,890

 

 

 

 

Net Assets – (100%)

$

513,220,643

 

 

(a)

Aggregate cost for Federal Income Tax Purposes is $479,943,753.

 

(b)    The interest rates on floating rate securities, shown as of December 31, 2005, may change daily or less frequently and are based on indices of market interests rates. For purposes of amortized cost valuation, the maturity dates of these securities are considered to be the effective maturities, based on the reset dates of the securities’ variable rates. 

 

(c)

The interest rates on variable rate securities represents the current rate as of December 31, 2005.

 

(d)    Represents a step-up bond: a bond that pays one coupon rate for an initial period followed by a higher coupon rate.

 

***See Notes to Financial Statements***

 

51

 

 

 

**DAVIS SERIES, INC.**  

SCHEDULE OF INVESTMENTS AT DECEMBER 31, 2005

**DAVIS FINANCIAL FUND**

 

 

**Value**

**Shares**

**Security**

**(Note 1)**

**COMMON STOCK – (100.15%)**

 

**CAPITAL GOODS – (7.75%)**

 

 

 

 

2,450,000

 

Tyco International Ltd. 

$

70,707,000

 

**CAPITAL MARKETS – (2.97%)**

 

 

 

 

660,300

 

Ameriprise Financial, Inc. 

 

27,072,300

 

**COMMERCIAL BANKS – (4.80%)**

 

 

 

 

1,208,000

 

Commerce Bancorp, Inc. 

 

41,567,280

 

 

75,700

 

ICICI Bank Ltd., ADR

 

2,180,160

 

 

 

 

 

 

43,747,440

 

**COMMERCIAL SERVICES & SUPPLIES – (6.49%)**

 

 

 

 

883,750

 

D&B Corp.*

 

59,175,900

 

**CONSUMER FINANCE – (13.93%)**

 

 

 

 

1,949,000

 

American Express Co. 

 

100,295,540

 

 

815,000

 

First Marblehead Corp. 

 

26,780,900

 

 

 

 

 

 

127,076,440

 

**CONSUMER SERVICES – (2.13%)**

 

 

 

 

791,000

 

H&R Block, Inc. 

 

19,419,050

 

**DIVERSIFIED FINANCIAL SERVICES – (10.31%)**

 

 

 

 

1,019,560

 

JPMorgan Chase & Co. 

 

40,466,336

 

 

872,600

 

Moody’s Corp. 

 

53,595,092

 

 

 

 

 

 

94,061,428

 

**FOOD, BEVERAGE, & TOBACCO – (2.82%)**

 

 

 

 

345,000

 

Altria Group, Inc. 

 

25,778,400

 

**LIFE & HEALTH INSURANCE – (0.81%)**

 

 

 

 

208,700

 

China Life Insurance Co., Ltd., ADR*

 

7,362,936

 

**MATERIALS – (2.83%)**

 

 

 

 

459,000

 

Sealed Air Corp.*

 

25,782,030

 

**MULTI-LINE INSURANCE – (11.28%)**

 

 

 

 

826,796

 

American International Group, Inc. 

 

56,412,291

 

 

490,200

 

Loews Corp. 

 

46,495,470

 

 

 

 

 

 

102,907,761

 

**PROPERTY & CASUALTY INSURANCE – (13.74%)**

 

 

 

 

557

 

Berkshire Hathaway Inc., Class A*

 

49,361,340

 

 

337,300

 

FPIC Insurance Group, Inc.*

 

11,705,997

 

 

88,200

 

Markel Corp.*

 

27,963,810

 

 

311,000

 

Progressive Corp. (Ohio)

 

36,318,580

 

 

 

 

 

 

125,349,727

 

**REINSURANCE – (13.00%)**

 

 

 

 

225,000

 

Everest Re Group, Ltd. 

 

22,578,750

 

 

1,428,187

 

Transatlantic Holdings, Inc. 

 

95,974,166

 

 

 

 

 

 

118,552,916

 

 

 

52

 

 

 

**DAVIS SERIES, INC.**  

SCHEDULE OF INVESTMENTS AT DECEMBER 31, 2005

**DAVIS FINANCIAL FUND – (Continued)**

 
 
 

 

**Value**

 
**Shares/Principal**

**Security**

**(Note 1)**

 
**COMMON STOCK – (Continued)**

 

**THRIFT & MORTGAGE FINANCE – (7.29%)**

 

 

 

 

1,007,400

 

Golden West Financial Corp. 

$

66,488,400

 

 

 

 

 

Total Common Stock – (identified cost $453,645,705)

 

913,481,728

 

 

**SHORT TERM INVESTMENTS – (0.03%)**

 

$

103,000

 

Banc of America Securities LLC Joint Repurchase Agreement, 4.28%,

 

 

 

 

 

 

01/03/06, dated 12/30/05, repurchase value of $103,049

 

 

 

 

 

 

(collateralized by: U.S. Government agency mortgages in a pooled 

 

 

 

 

 

 

cash account, 4.21%-6.50%, 05/01/15-09/01/44, total market

 

 

 

 

 

 

value $105,060)

 

103,000

 

 

144,000

 

Nomura Securities International, Inc. Joint Repurchase Agreement, 4.28%,

 

 

 

 

 

 

01/03/06, dated 12/30/05, repurchase value of $144,068

 

 

 

 

 

 

(collateralized by: U.S. Government agency obligations in a pooled 

 

 

 

 

 

 

cash account, 0%-6.625%, 01/30/06-12/20/027, total market

 

 

 

 

 

 

value $146,880)

 

144,000

 

 

 

 

 

Total Short Term Investments – (identified cost $247,000)

 

247,000

 

 

 

 

 

Total Investments – (100.18%) – (identified cost $453,892,705) – (a)

 

913,728,728

 

 

 

 

Liabilities Less Other Assets – (0.18%)

 

(1,669,735

)

 

 

 

Net Assets – (100%)

$

912,058,993

 

 

*Non-Income Producing Security.

 

(a)    Aggregate cost for Federal Income Tax purposes is $453,892,705.  At December 31, 2005 unrealized appreciation (depreciation) of securities for Federal Income Tax purposes is as follows:

 

 

 

 

Unrealized appreciation

$

459,836,023

 

 

 

 

Unrealized depreciation

 

–

 

 

 

 

Net unrealized appreciation

$

459,836,023

 

 

***See Notes to Financial Statements***

 

53

 

 

 

**DAVIS SERIES, INC.**  

SCHEDULE OF INVESTMENTS AT DECEMBER 31, 2005

**DAVIS APPRECIATION & INCOME FUND**

 

 

**Value**

**Shares/Principal**

**Security**

**(Note 1)**

**CONVERTIBLE Preferred Stock – (6.53%)**

 

**CAPITAL GOODS – (1.82%)**

 

 

 

 

166,700

 

United Rentals Trust I, 6.50%, 08/01/28, Conv. Pfd. 

$

7,126,425

 

**COMMERCIAL BANKS – (0.86%)**

 

 

 

 

90,000

 

HSBC Finance Corp., (Convertible into HSBC Holdings PLC), 

 

 

 

 

 

 

8.875%, 02/15/06, Adjustable Conversion-Rate Equity Security

 

 

 

 

 

 

Cum. Conv. Pfd. 

 

3,362,130

 

**PROPERTY & CASUALTY INSURANCE – (0.75%)**

 

 

 

 

119,400

 

Travelers Property Casualty Corp., 4.50%, 04/15/32, Conv. Pfd. 

 

2,956,344

 

**TRANSPORTATION – (1.18%)**

 

 

 

 

161,300

 

Continental Airlines Finance Trust II, 6.00%, 11/15/30, Cum. Conv. Pfd. 

 

4,637,375

 

**UTILITIES – (1.92%)**

 

 

 

 

169,500

 

AES Trust III, 6.75%, 10/15/29, Conv. Pfd. 

 

7,525,800

 

 

 

 

 

 

 

 

 

 

 

Total Convertible Preferred Stock – (identified cost $20,839,387)

 

25,608,074

 

 

**Convertible Bonds – (41.99%)**

 

**CAPITAL GOODS – (4.18%)**

 

 

 

$

13,600,000

 

Masco Corp., Series B Conv. Sr. Notes, Zero Cpn., 2.95%,

 

 

 

 

 

 

07/20/31 (c)(d)

 

6,256,000

 

 

5,500,000

 

Quanta Services, Inc., Conv. Sub. Deb., 4.50%, 10/01/23

 

7,232,500

 

 

3,000,000

 

Quanta Services, Inc., Conv. Sub. Notes, 4.00%, 07/01/07

 

2,910,000

 

 

 

 

 

 

16,398,500

 

**COMMERCIAL SERVICES & SUPPLIES – (7.88%)**

 

 

 

 

9,160,000

 

NCO Group Inc., Conv. Sub. Notes, 4.75%, 04/15/06

 

9,114,200

 

 

12,210,000

 

School Specialty, Inc., Conv. Sub. Notes, 3.75%/Zero Cpn., 08/01/23 (e)

 

12,637,350

 

 

8,260,000

 

Waste Connections, Inc., Conv. Sub. Notes, 4.75%, 05/01/22 (f)

 

9,179,338

 

 

 

 

 

 

30,930,888

 

**CONSUMER FINANCE – (3.02%)**

 

 

 

 

11,100,000

 

American Express Co., Ser. 144A Conv. Sr. Notes, 1.85%/Zero Cpn.,

 

 

 

 

 

 

12/01/33 (b)(e)

 

11,835,375

 

**CONSUMER SERVICES – (2.89%)**

 

 

 

 

4,900,000

 

GTECH Holdings Corp., Conv. Deb., 1.75%, 12/15/21

 

11,337,375

 

**ENERGY – (5.08%)**

 

 

 

 

12,400,000

 

Lehman Brothers Holdings Inc., Conv. Notes, (Convertible into

 

 

 

 

 

 

Devon Energy Corp.), 0.25%, 08/23/11 (g)

 

19,946,640

 

**FOOD & STAPLES RETAILING – (0.81%)**

 

 

 

 

2,800,000

 

Costco Wholesale Corp., Conv. Sub. Notes, Zero Cpn., 1.03%,

 

 

 

 

 

 

08/19/17 (c)(d)

 

3,160,500

 

**HEALTH CARE EQUIPMENT & SERVICES – (3.20%)**

 

 

 

 

21,900,000

 

Universal Health Services, Inc., Conv. Deb., 0.426%, 06/23/20

 

12,565,125

 

 

54

 

 

 

**DAVIS SERIES, INC.**

SCHEDULE OF INVESTMENTS AT DECEMBER 31, 2005

**DAVIS APPRECIATION & INCOME FUND – (Continued)**

 

 

**Value**

**Principal**

**Security**

**(Note 1)**

**CONVERTIBLE BONDS – (Continued)**

 

**MATERIALS – (2.30%)**

 

 

 

$

9,000,000

 

Sealed Air Corp., Ser. 144A Conv. Sr. Notes, 3.00%, 06/30/33 (b)

$

9,022,500

 

**MEDIA – (1.97%)**

 

 

 

 

13,050,000

 

News America Inc., Conv. Notes, Zero Cpn., 3.36%, 02/28/21 (c)(d)

 

7,732,125

 

**MULTI-LINE INSURANCE – (3.81%)**

 

 

 

 

2,500,000

 

American International Group, Inc., Conv. Sr. Deb., Zero Cpn., 1.76%,

 

 

 

 

 

 

11/09/31 (c)(d)

 

1,703,125

 

 

13,895,000

 

American International Group, Inc., Conv. Sr. Notes, 0.50%, 05/15/07

 

13,252,356

 

 

 

 

 

 

14,955,481

 

**PHARMACEUTICALS & BIOTECHNOLOGY – (0.96%)**

 

 

 

 

4,400,000

 

Valeant Pharmaceuticals International, Conv. Sub. Notes,

 

 

 

 

 

 

4.00%, 11/15/13

 

3,773,000

 

**REAL ESTATE – (2.27%)**

 

 

 

 

8,500,000

 

Vornado Realty L.P., Conv. Sr. Deb., 3.875%, 04/15/25

 

8,914,375

 

**RESIDENTIAL/COMMERCIAL BUILDING – (0.45%)**

 

 

 

 

1,600,000

 

WCI Communities, Inc., Conv. Sr. Sub. Notes, 4.00%, 08/05/23

 

1,780,000

 

**SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT – (3.17%)**

 

 

 

 

2,675,000

 

Fairchild Semiconductor Corp., Conv. Sr. Sub., 5.00%, 11/01/08

 

2,621,500

 

 

10,220,000

 

International Rectifier Corp., Conv. Sub. Notes, 4.25%, 07/15/07

 

9,811,200

 

 

 

 

 

 

12,432,700

 

 

 

 

 

Total Convertible Bonds – (identified cost $152,813,364)

 

164,784,584

 

 

**CORPORATE Bonds – (4.19%)**

 

**AUTOMOTIVE RETAIL – (0.46%)**

 

 

 

 

1,900,000

 

AutoZone, Inc., Sr. Notes, 5.50%, 11/15/15

 

1,792,774

 

**CONSUMER FINANCE – (1.99%)**

 

 

 

 

14,200,000

 

Providian Financial Corp., Conv. Notes, Zero Cpn.,

 

 

 

 

 

 

6.58%, 02/15/21 (c)(d)(g)

 

7,791,540

 

**ENERGY – (0.36%)**

 

 

 

 

1,300,000

 

Occidental Petroleum Corp., Sr. Notes, 6.75%, 01/15/12

 

1,428,657

 

**HOUSEHOLD & PERSONAL PRODUCTS – (1.38%)**

 

 

 

 

6,000,000

 

Avon Products, Inc., Sr. Notes, 4.20%, 07/15/18

 

5,414,046

 

 

 

 

 

Total Corporate Bonds  – (identified cost $14,082,669)

 

16,427,017

 

 

 

55

 

 

 

**DAVIS SERIES, INC.**  

SCHEDULE OF INVESTMENTS AT DECEMBER 31, 2005 

**DAVIS APPRECIATION & INCOME FUND – (Continued)**

 

 

**Value**

**Shares**

**Security**

**(Note 1)**

**COMMON STOCK – (22.34%)**

 

**AUTOMOTIVE RETAIL – (1.47%)**

 

 

 

 

62,900

 

AutoZone, Inc.*

$

5,771,075

 

**CAPITAL GOODS – (2.00%)**

 

 

 

 

126,400

 

Masco Corp. 

 

3,816,016

 

 

306,700

 

Quanta Services, Inc.*

 

4,039,239

 

 

 

 

 

 

7,855,255

 

**COMMERCIAL SERVICES & SUPPLIES – (1.04%)**

 

 

 

 

118,000

 

Waste Connections, Inc.*

 

4,066,280

 

**DEPARTMENT STORES – (1.99%)**

 

 

 

 

140,350

 

J. C. Penney Co., Inc. 

 

7,803,460

 

**DIVERSIFIED FINANCIAL SERVICES – (1.38%)**

 

 

 

 

111,500

 

Citigroup Inc. 

 

5,411,095

 

**ENERGY – (0.29%)**

 

 

 

 

14,500

 

Occidental Petroleum Corp. 

 

1,158,260

 

**FOOD & STAPLES RETAILING – (0.82%)**

 

 

 

 

64,900

 

Costco Wholesale Corp. 

 

3,206,385

 

**HOUSEHOLD & PERSONAL PRODUCTS – (2.28%)**

 

 

 

 

313,000

 

Avon Products, Inc. 

 

8,936,150

 

**MEDIA – (0.49%)**

 

 

 

 

115,000

 

News Corp., Class B

 

1,910,150

 

**MULTI-LINE INSURANCE – (0.43%)**

 

 

 

 

24,900

 

American International Group, Inc. 

 

1,698,927

 

**REAL ESTATE – (7.90%)**

 

 

 

 

14,912

 

Centerpoint Properties Trust

 

737,846

 

 

245,667

 

General Growth Properties, Inc. 

 

11,543,892

 

 

245,160

 

SL Green Realty Corp. 

 

18,727,772

 

 

 

 

 

 

31,009,510

 

**SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT – (1.07%)**

 

 

 

 

131,700

 

International Rectifier Corp. *

 

4,201,230

 

**SOFTWARE & SERVICES – (1.18%)**

 

 

 

 

103,000

 

SAP AG-ADR

 

4,642,210

 

 

 

 

 

Total Common Stock – (identified cost $51,556,239)

 

87,669,987

 

 

 

56

 

 

 

**DAVIS SERIES, INC.**  

SCHEDULE OF INVESTMENTS AT DECEMBER 31, 2005

**DAVIS APPRECIATION & INCOME FUND – (Continued)**

 

 

**Value**

**Principal**

**Security**

**(Note 1)**

**SHORT TERM INVESTMENTS – (24.28%)**

 

$

39,596,000

 

Banc of America Securities LLC Joint Repurchase Agreement, 4.28%,

 

 

 

 

 

 

01/03/06, dated 12/30/05, repurchase value of $39,614,830

 

 

 

 

 

 

(collateralized by: U.S. Government agency mortgages in a pooled 

 

 

 

 

 

 

cash account, 4.21%-6.50%, 05/01/15-09/01/44, total market

 

 

 

 

 

 

value $40,387,920)

$

39,596,000

 

 

55,667,000

 

Nomura Securities International, Inc. Joint Repurchase Agreement, 4.28%,

 

 

 

 

 

 

01/03/06, dated 12/30/05, repurchase value of $55,693,473

 

 

 

 

 

 

(collateralized by: U.S. Government agency obligations in a pooled 

 

 

 

 

 

 

cash account, 0%-6.625%, 01/30/06-12/20/027, total market

 

 

 

 

 

 

value $56,780,340)

 

55,667,000

 

 

 

 

 

Total Short Term Investments – (identified cost $95,263,000)

 

95,263,000

 

 

 

 

 

Total Investments – (99.33%) – (identified cost $334,554,659) – (a)

 

389,752,662

 

 

 

 

Other Assets Less Liabilities – (0.67%)

 

2,640,675

 

 

 

 

Net Assets – (100.00%)

$

392,393,337

 

 

*Non-Income Producing Security.

 

(a)    Aggregate cost for Federal Income Tax purposes is $334,676,674. At December 31, 2005 unrealized appreciation (depreciation) of securities for Federal Income Tax purposes is as follows:

 

 

 

Unrealized appreciation

$

58,779,549

 

 

 

 

Unrealized depreciation

 

(3,703,561

)

 

 

 

Net unrealized appreciation

$

55,075,988

 

 

(b)    These securities are subject to Rule 144A.  The Board of Directors of the Fund has determined that there is sufficient liquidity in these securities to realize current valuations.  These securities amounted to $20,857,875 or 5.32% of the Fund’s net assets, as of December 31, 2005.

(c)    As of December 31, 2005, zero coupon bonds represented $26,643,290 or 6.79% of the Fund’s net assets. Because zero coupon bonds pay no interest their value is generally more volatile than the value of other debt securities.

(d)

Zero coupon bonds reflect effective yield on the date of purchase.

(e)    Represents a step-down bond: a bond that pays one coupon rate for an initial period followed by a lower coupon rate.

(f)     The interest rates on floating rate securities, shown as of December 31, 2005, may change daily or less frequently.

(g)

Illiquid Security – See Note 9 of the Notes to Financial Statements.

 

***See Notes to Financial Statements***

 

57

 

 

 

**DAVIS SERIES, INC.**  

SCHEDULE OF INVESTMENTS AT DECEMBER 31, 2005

**DAVIS REAL ESTATE FUND**

 

 

**Value**

**Shares**

**Security**

**(Note 1)**

**COMMON STOCK – (85.77%)**

 

**APARTMENT REITS – (12.43%)**

 

 

 

 

537,800

 

American Campus Communities, Inc. 

$

13,337,440

 

 

324,000

 

Archstone-Smith Trust

 

13,572,360

 

 

218,000

 

Camden Property Trust

 

12,626,560

 

 

229,333

 

Essex Property Trust, Inc. 

 

21,144,503

 

 

771,921

 

United Dominion Realty Trust, Inc. 

 

18,093,828

 

 

 

 

 

 

78,774,691

 

**DIVERSIFIED REITS – (9.09%)**

 

 

 

 

670,000

 

Cousins Properties, Inc. 

 

18,961,000

 

 

520,673

 

Duke Realty Corp. 

 

17,390,478

 

 

260,900

 

Spirit Finance Corp. 

 

2,961,215

 

 

219,562

 

Vornado Realty Trust

 

18,326,840

 

 

 

 

 

 

57,639,533

 

**HEALTH CARE REITS – (1.98%)**

 

 

 

 

391,000

 

Ventas, Inc. 

 

12,519,820

 

**MORTGAGE REITS – (1.38%)**

 

 

 

 

384,300

 

Gramercy Capital Corp. 

 

8,754,354

 

**OFFICE PROPERTY REITS – (22.44%)**

 

 

 

 

289,113

 

Alexandria Real Estate Equities, Inc. 

 

23,273,597

 

 

259,842

 

Boston Properties, Inc. 

 

19,262,087

 

 

460,356

 

CarrAmerica Realty Corp. 

 

15,942,128

 

 

415,400

 

Columbia Equity Trust, Inc. 

 

6,708,710

 

 

618,138

 

Corporate Office Properties Trust

 

21,968,625

 

 

388,600

 

Kilroy Realty Corp. 

 

24,054,340

 

 

406,358

 

SL Green Realty Corp. 

 

31,041,688

 

 

 

 

 

 

142,251,175

 

**REAL ESTATE OPERATIONS/DEVELOPMENT – (9.53%)**

 

 

 

 

1,420,183

 

Brixton PLC

 

10,567,820

 

 

148,600

 

Derwent Valley Holdings PLC

 

3,684,154

 

 

698,284

 

Forest City Enterprises, Inc., Class A

 

26,485,912

 

 

184,000

 

Hammerson PLC

 

3,235,368

 

 

490,000

 

Liberty International PLC

 

8,266,062

 

 

73,000

 

St. Joe Company

 

4,907,060

 

 

319,000

 

Slough Estates PLC

 

3,284,807

 

 

 

 

 

 

60,431,183

 

**REGIONAL MALL REITS – (8.73%)**

 

 

 

 

547,557

 

General Growth Properties, Inc. 

 

25,729,703

 

 

246,800

 

Mills Corp. 

 

10,350,792

 

 

 

58

 

 

 

**DAVIS SERIES, INC.**                                                                                                                               

SCHEDULE OF INVESTMENTS AT DECEMBER 31, 2005

**DAVIS REAL ESTATE FUND – (Continued)**

 

 

**Value**

**Shares**

**Security**

**(Note 1)**

**COMMON STOCK – (Continued)**

 

**REGIONAL MALL REITS – (Continued)**

 

 

 

 

135,200

 

Pennsylvania REIT

$

5,051,072

 

 

185,253

 

Simon Property Group, Inc. 

 

14,195,937

 

 

 

 

 

 

55,327,504

 

**SHOPPING CENTER REITS – (12.62%)**

 

 

 

 

476,808

 

Developers Diversified Realty Corp. 

 

22,419,512

 

 

625,590

 

Kimco Realty Corp. 

 

20,068,927

 

 

270,400

 

Pan Pacific Retail Properties, Inc. 

 

18,087,056

 

 

329,778

 

Regency Centers Corp. 

 

19,440,413

 

 

 

 

 

 

80,015,908

 

**TRANSPORTATION – (0.55%)**

 

 

 

 

82,500

 

Florida East Coast Industries, Inc. 

 

3,495,525

 

**WAREHOUSE & INDUSTRIAL REITS – (7.02%)**

 

 

 

 

280,500

 

AMB Property Corp. 

 

13,792,185

 

 

86,454

 

Centerpoint Properties Trust

 

4,277,744

 

 

566,492

 

ProLogis

 

26,466,506

 

 

 

 

 

 

44,536,435

 

 

 

 

 

Total Common Stock – (identified cost $349,848,335)

 

543,746,128

 

 

**PREFERRED STOCK – (0.47%)**

 

**APARTMENT REITS – (0.47%)**

 

 

 

 

43,700

 

Equity Residential, 7.00%, Series E, Cum. Conv. Pfd. 

 

1,911,875

 

 

32,000

 

Equity Residential, 8.60%, Series D, Cum. Pfd. 

 

819,040

 

 

10,000

 

Equity Residential, 9.125%, Series C, Cum. Pfd. 

 

254,150

 

 

 

 

 

Total Preferred Stock – (identified cost $2,204,017)

 

2,985,065

 

 

 

59

 

 

 

**DAVIS SERIES, INC.**  

SCHEDULE OF INVESTMENTS AT DECEMBER 31, 2005

**DAVIS REAL ESTATE FUND – (Continued)**

 

 

**Value**

**Principal**

**Security**

**(Note 1)**

**SHORT TERM INVESTMENTS – (9.89%)**

 

$

26,072,000

 

Banc of America Securities LLC Joint Repurchase Agreement, 4.28%,

 

 

 

 

 

 

01/03/06, dated 12/30/05, repurchase value of $26,084,399

 

 

 

 

 

 

(collateralized by: U.S. Government agency mortgages in a pooled 

 

 

 

 

 

 

cash account, 4.21%-6.50%, 05/01/15-09/01/44, total market

 

 

 

 

 

 

value $26,593,440)

$

26,072,000

 

 

36,654,000

 

Nomura Securities International, Inc. Joint Repurchase Agreement, 4.28%,

 

 

 

 

 

 

01/03/06, dated 12/30/05, repurchase value of $36,671,431

 

 

 

 

 

 

(collateralized by: U.S. Government agency obligations in a pooled 

 

 

 

 

 

 

cash account, 0%-6.625%, 01/30/06-12/20/027, total market

 

 

 

 

 

 

value $37,387,080)

 

36,654,000

 

 

 

 

 

Total Short Term Investments – (identified cost $62,726,000)

 

62,726,000

 

 

 

 

 

Total Investments – (96.13%) – (identified cost $414,778,352) – (a)

 

609,457,193

 

 

 

 

Other Assets Less Liabilities – (3.87%)

 

24,537,537

 

 

 

 

Net Assets – (100.00%)

$

633,994,730

 

 

 

(a)    Aggregate cost for Federal Income Tax purposes is $417,645,073.  At December 31, 2005 unrealized appreciation (depreciation) of securities for Federal Income Tax purposes is as follows:

 

 

 

 

Unrealized appreciation

$

194,076,140

 

 

 

 

Unrealized depreciation

 

(2,264,020

)

 

 

 

Net unrealized appreciation

$

191,812,120

 

 

***See Notes to Financial Statements***

 

 

60

 

 

 

**DAVIS SERIES, INC.**

STATEMENTS OF ASSETS AND LIABILITIES

At December 31, 2005

 

 

**Davis**

**Opportunity**

**Fund**

 

**Davis**

**Government****Bond Fund**

 

**Davis Government**

**Money Market****Fund**

 

**Davis**

**Financial****Fund**

 

**Davis**

**Appreciation& Income**

**Fund**

 

**Davis**

**Real Estate****Fund**

 

**ASSETS:**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments in securities, 

at value* (see accompanying 

Schedule of Investments):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unaffiliated companies

$

727,872,608

 

$

50,065,846

 

$

479,943,753

 

$

913,728,728

 

$

389,752,662

 

$

609,457,193

 

Affiliated companies

 

15,354,075

 

 

–

 

 

–

 

 

–

 

 

–

 

 

–

 

Cash

 

5,376

 

 

4,684

 

 

14,896

 

 

88,674

 

 

3,957

 

 

3,508

 

Cash – Foreign currencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(cost $122,496)

 

120,901

 

 

–

 

 

–

 

 

–

 

 

–

 

 

–

 

Receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends and interest

 

698,678

 

 

404,508

 

 

2,165,879

 

 

629,264

 

 

1,369,090

 

 

2,678,246

 

Capital stock sold

 

3,048,859

 

 

218,994

 

 

31,677,825

 

 

4,275,079

 

 

2,580,792

 

 

2,855,906

 

Investment securities sold

 

1,069,633

 

 

–

 

 

–

 

 

–

 

 

681,632

 

 

22,606,762

 

Total assets

 

748,170,130

 

 

50,694,032

 

 

513,802,353

 

 

918,721,745

 

 

394,388,133

 

 

637,601,615

 

**LIABILITIES:**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital stock reacquired

 

1,621,218

 

 

487,887

 

 

193,758

 

 

5,296,048

 

 

1,372,316

 

 

2,608,100

 

Investment securities purchased

 

1,104,084

 

 

–

 

 

–

 

 

–

 

 

–

 

 

–

 

Distributions payable

 

–

 

 

48,161

 

 

–

 

 

–

 

 

–

 

 

–

 

Accrued expenses

 

268,338

 

 

80,395

 

 

153,745

 

 

290,587

 

 

150,315

 

 

237,803

 

Accrued management fees

 

421,071

 

 

13,356

 

 

234,207

 

 

506,285

 

 

242,040

 

 

372,122

 

Distribution and service plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

fees (Note 3)

 

474,696

 

 

43,633

 

 

–

 

 

569,832

 

 

230,125

 

 

388,860

 

Total liabilities

 

3,889,407

 

 

673,432

 

 

581,710

 

 

6,662,752

 

 

1,994,796

 

 

3,606,885

 

**NET ASSETS**

$

744,280,723

 

$

50,020,600

 

$

513,220,643

 

$

912,058,993

 

$

392,393,337

 

$

633,994,730

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**NET ASSETS CONSISTS OF:**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Par value of shares of 

capital stock

$

316,480

 

$

90,990

 

$

5,132,206

 

$

220,886

 

$

140,584

 

$

157,467

 

Additional paid-in capital

 

602,353,350

 

 

57,381,095

 

 

508,088,437

 

 

447,952,258

 

 

331,646,688

 

 

404,747,319

 

Overdistributed net investment

income

 

(4,239,135

)

 

–

 

 

–

 

 

–

 

 

(752,710

)

 

(6,959,311

)

Accumulated net realized gains

(losses) from investments and

foreign currency  transactions

 

(7,140,921

)

 

(6,743,657

)

 

–

 

 

4,049,826

 

 

6,160,772

 

 

41,371,088

 

Net unrealized appreciation 

(depreciation) on investments 

and foreign currency 

transactions

 

152,990,949

 

 

(707,828

)

 

–

 

 

459,836,023

 

 

55,198,003

 

 

194,678,167

 

Net Assets

$

744,280,723

 

$

50,020,600

 

$

513,220,643

 

$

912,058,993

 

$

392,393,337

 

$

633,994,730

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Including repurchase agreements of $179,074,000 and $95,263,000 for Davis Government Money Market Fund and Davis Appreciation & Income Fund, respectively, cost for Unafilliated companies and Affiliated companies of $572,322,747 and $17,912,546 respectively for Davis Opportunity Fund, and cost of  $50,773,674, $479,943,753, $453,892,705, $334,554,659, and $414,778,352 for Davis Government Bond Fund, Davis Government Money Market Fund, Davis Financial Fund, Davis Appreciation & Income Fund, and Davis Real Estate Fund, respectively.

 

61

 

 

 

**DAVIS SERIES, INC.**

STATEMENTS OF ASSETS AND LIABILITIES – (Continued)

At December 31, 2005

 

 

**Davis**

**Opportunity**

**Fund**

 

**Davis**

**Government****Bond Fund**

 

**Davis Government**

**Money Market****Fund**

 

**Davis**

**Financial****Fund**

 

**Davis**

**Appreciation& Income**

**Fund**

 

**Davis**

**Real Estate****Fund**

 

**CLASS A SHARES**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets

$

446,794,056

 

$

19,340,371

 

$

472,060,668

 

$

613,682,699

 

$

224,599,684

 

$

372,570,903

 

Shares outstanding

 

18,394,042

 

 

3,513,608

 

 

472,060,668

 

 

14,473,421

 

 

8,039,708

 

 

9,260,188

 

Net asset value and redemption

price per share (net 

assets/shares outstanding)

$

24.29

 

$

5.50

 

$

1.00

 

$

42.40

 

$

27.94

 

$

40.23

 

Maximum offering price per 

share (100/95.25 of net 

asset value)

$

25.50

 

$

5.77

 

$

1.00

 

$

44.51

 

$

29.33

 

$

42.24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**CLASS B SHARES**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets

$

96,501,225

 

$

25,207,658

 

$

35,252,649

 

$

192,048,720

 

$

75,288,547

 

$

87,038,723

 

Shares outstanding

 

4,501,763

 

 

4,591,813

 

 

35,252,649

 

 

4,945,903

 

 

2,721,148

 

 

2,173,474

 

Net asset value and redemption

price per share (net 

assets/shares outstanding)

$

21.44

 

$

5.49

 

$

1.00

 

$

38.83

 

$

27.67

 

$

40.05

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**CLASS C SHARES**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets

$

150,843,538

 

$

5,357,993

 

$

5,907,326

 

$

94,512,279

 

$

55,395,256

 

$

95,228,865

 

Shares outstanding

 

6,742,185

 

 

972,892

 

 

5,907,326

 

 

2,395,128

 

 

1,974,456

 

 

2,359,964

 

Net asset value and redemption

price per share (net 

assets/shares outstanding)

$

22.37

 

$

5.51

 

$

1.00

 

$

39.46

 

$

28.06

 

$

40.35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**CLASS Y SHARES**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets

$

50,141,904

 

$

114,578

 

$

–

 

$

11,815,295

 

$

37,109,850

 

$

79,156,239

 

Shares outstanding

 

2,010,040

 

 

20,653

 

 

–

 

 

274,127

 

 

1,323,098

 

 

1,953,092

 

Net asset value and redemption

price per share (net 

assets/shares outstanding)

$

24.95

 

$

5.55

 

$

–

 

$

43.10

 

$

28.05

 

$

40.53

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

***See Notes to Financial Statements***

 

62

 

 

 

**DAVIS SERIES, INC.**

STATEMENTS OF OPERATIONS

For the year ended December 31, 2005

 

 

 

**Davis**

**Opportunity**

**Fund**

 

**Davis**

**Government****Bond Fund**

 

**Davis Government**

**Money Market****Fund**

 

**Davis**

**Financial****Fund**

 

**Davis**

**Appreciation& Income**

**Fund**

 

**Davis**

**Real Estate****Fund**

 

**INVESTMENT INCOME (LOSS):**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unaffiliated companies*

$

6,537,901

 

$

**–**

 

$

–

 

$

9,664,390

 

$

3,259,318

 

$

14,436,460

 

Affiliated companies

 

115,913

 

 

–

 

 

–

 

 

–

 

 

–

 

 

–

 

Interest

 

1,592,993

 

 

1,999,577

 

 

17,680,653

 

 

42,653

 

 

7,666,249

 

 

1,001,116

 

Total income

 

8,246,807

 

 

1,999,577

 

 

17,680,653

 

 

9,707,043

 

 

10,925,567

 

 

15,437,576

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management fees (Note 2)

 

4,163,731

 

 

176,711

 

 

2,572,834

 

 

5,701,681

 

 

2,472,975

 

 

4,057,068

 

Custodian fees

 

145,408

 

 

33,167

 

 

74,366

 

 

120,012

 

 

62,683

 

 

100,896

 

Transfer agent fees:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

589,352

 

 

61,015

 

 

66,945

 

 

599,852

 

 

157,046

 

 

349,018

 

Class B

 

177,861

 

 

67,631

 

 

78,804

 

 

415,564

 

 

107,354

 

 

145,308

 

Class C

 

186,130

 

 

17,040

 

 

17,156

 

 

164,750

 

 

57,248

 

 

116,915

 

Class Y

 

28,110

 

 

724

 

 

–

 

 

15,347

 

 

7,436

 

 

13,572

 

Audit fees

 

15,600

 

 

12,000

 

 

20,400

 

 

30,000

 

 

16,800

 

 

20,400

 

Legal fees

 

10,762

 

 

963

 

 

9,435

 

 

15,161

 

 

6,049

 

 

10,641

 

Accounting fees (Note 2)

 

6,504

 

 

2,496

 

 

37,500

 

 

14,496

 

 

7,500

 

 

9,504

 

Reports to shareholders

 

135,751

 

 

15,087

 

 

91,499

 

 

215,867

 

 

75,120

 

 

184,664

 

Directors’ fees and expenses

 

55,634

 

 

12,673

 

 

52,026

 

 

78,212

 

 

30,620

 

 

52,951

 

Registration and filing fees

 

86,000

 

 

54,451

 

 

83,993

 

 

71,279

 

 

66,224

 

 

79,983

 

Interest expense

 

–

 

 

**–**

 

 

–

 

 

33,379

 

 

**–**

 

 

**–**

 

Miscellaneous

 

16,353

 

 

7,399

 

 

13,386

 

 

18,912

 

 

12,842

 

 

17,366

 

Distribution plan payments 

(Note 3):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

942,831

 

 

42,102

 

 

–

 

 

1,064,214

 

 

336,931

 

 

814,847

 

Class B

 

1,001,940

 

 

299,474

 

 

–

 

 

2,301,816

 

 

794,946

 

 

1,025,758

 

Class C

 

1,152,000

 

 

61,496

 

 

–

 

 

949,302

 

 

440,422

 

 

904,461

 

Total expenses

 

8,713,967

 

 

864,429

 

 

3,118,344

 

 

11,809,844

 

 

4,652,196

 

 

7,903,352

 

Expenses paid indirectly

(Note 6)

 

(1,286

)

 

(39

)

 

(239

)

 

(424

)

 

(415

)

 

(42

 

)

Reimbursement of expenses by adviser (Note 10)

 

(43,053

)

 

(10,048

)

 

(21,066

)

 

(159,351

)

 

(20,919

)

 

(49,286

)

Net expenses

 

8,669,628

 

 

854,342

 

 

3,097,039

 

 

11,650,069

 

 

4,630,862

 

 

7,854,024

 

Net investment income (loss)

 

(422,821

)

 

1,145,235

 

 

14,583,614

 

 

(1,943,026

)

 

6,294,705

 

 

7,583,552

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**REALIZED & UNREALIZED GAIN (LOSS) ON INVESTMENTS:**

Net realized gain (loss) from:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment transactions

 

20,503,351

 

 

(244,163

)

 

–

 

 

61,142,832

 

 

16,194,444

 

 

76,884,980

 

Foreign currency transactions

 

(25,157

)

 

**–**

 

 

–

 

 

(8,013

)

 

**–**

 

 

(3,415

)

Option transactions

 

219,053

 

 

**–**

 

 

–

 

 

–

 

 

**–**

 

 

–

 

Net change in unrealized appreciation

(depreciation) on investments

 

31,135,605

 

 

(599,392

)

 

–

 

 

3,880,395

 

 

(1,220,091

)

 

(11,583,489

 

)

Net realized and unrealized gain 

(loss) on investments and foreign

currency

 

51,832,852

 

 

(843,555

)

 

–

 

 

65,015,214

 

 

14,974,353

 

 

65,298,076

 

Net increase (decrease) in net assets

resulting from operations

$

51,410,031

 

$

301,680

 

$

14,583,614

 

$

63,072,188

 

$

21,269,058

 

$

72,881,628

 

*Net of foreign taxes withheld

as follows

$

466,002

 

$

**–**

 

$

**–**

 

$

27,821

 

$

5,443

 

$

35,720

 

***See Notes to Financial Statements***

 

63

 

 

 

**DAVIS SERIES, INC.**

STATEMENTS OF CHANGES IN NET ASSETS

For the year ended December 31, 2005

 

 

**Davis**

**Opportunity**

**Fund**

 

**Davis**

**Government****Bond Fund**

 

**Davis Government**

**Money Market****Fund**

 

**Davis**

**Financial****Fund**

 

**Davis**

**Appreciation& Income**

**Fund**

 

**Davis**

**Real Estate****Fund**

 

**OPERATIONS:**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

$

(422,821

)

$

1,145,235

 

$

14,583,614

 

$

(1,943,026

)

$

6,294,705

 

$

7,583,552

 

Net realized gain (loss) from

investments, options, and 

foreign currency 

transactions

 

20,697,247

 

 

(244,163

)

 

–

 

 

61,134,819

 

 

16,194,444

 

 

76,881,565

 

Net change in unrealized

appreciation (depreciation) on

investments

 

31,135,605

 

 

(599,392

)

 

–

 

 

3,880,395

 

 

(1,220,091

)

 

(11,583,489

 

 

)

Net increase in net assets

resulting from operations

 

51,410,031

 

 

301,680

 

 

14,583,614

 

 

63,072,188

 

 

21,269,058

 

 

72,881,628

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**DIVIDENDS AND**

**DISTRIBUTIONS TO**

**SHAREHOLDERS FROM:**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

(4,251,216

)

 

(538,167

)

 

(13,274,630

)

 

–

 

 

(4,274,477

)

 

(7,183,940

)

Class B

 

(191,375

)

 

(639,096

)

 

(1,117,620

)

 

–

 

 

(1,068,191

)

 

(1,291,175

)

Class C

 

(294,601

)

 

(128,274

)

 

(191,364

)

 

–

 

 

(603,910

)

 

(1,225,122

)

Class Y

 

(406,750

)

 

(5,297

)

 

 

 

 

–

 

 

(816,652

)

 

(1,796,648

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized gains from investment

transactions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

(10,852,744

)

 

–

 

 

–

 

 

(26,383,354

)

 

(4,940,686

)

 

(29,108,094

)

Class B

 

(2,666,107

)

 

–

 

 

–

 

 

(9,364,918

)

 

(1,739,725

)

 

(7,151,456

)

Class C

 

(3,817,725

)

 

–

 

 

–

 

 

(4,396,808

)

 

(1,206,649

)

 

(7,518,099

)

Class Y

 

(756,743

)

 

–

 

 

–

 

 

(498,295

)

 

(817,068

)

 

(6,148,349

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**CAPITAL SHARE**

**TRANSACTIONS**:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in net

assets resulting from capital

share transactions (Note 5) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

114,647,740

 

 

659,343

 

 

(46,589,118

)

 

12,529,196

 

 

71,612,560

 

 

52,659,611

 

Class B

 

(12,821,053

)

 

(9,161,956

)

 

(11,729,691

)

 

(87,496,299

)

 

(6,725,200

)

 

(40,170,726

)

Class C

 

52,699,956

 

 

(1,219,277

)

 

(841,326

)

 

(11,642,782

)

 

20,055,306

 

 

6,381,004

 

Class Y

 

31,541,664

 

 

(101,512

)

 

–

 

 

1,419,527

 

 

6,345,866

 

 

8,661,846

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total increase (decrease)

in net assets

 

214,241,077

 

 

(10,832,556

)

 

(59,160,135

)

 

(62,761,545

)

 

97,090,232

 

 

38,990,480

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**NET ASSETS:**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning of year

 

530,039,646

 

 

60,853,156

 

 

572,380,778

 

 

974,820,538

 

 

295,303,105

 

 

595,004,250

 

End of year*

$

744,280,723

 

$

50,020,600

 

$

513,220,643

 

$

912,058,993

 

$

392,393,337

 

$

633,994,730

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Including overdistributed

net investment income of

$

(4,239,135

)

$

–

 

$

**–**

 

$

**–**

 

$

(752,710

)

$

(6,959,311

 

)

 

***See Notes to Financial Statements***

 

64

 

 

 

**DAVIS SERIES, INC.**

STATEMENTS OF CHANGES IN NET ASSETS

For the year ended December 31, 2004

 

 

**Davis**

**Opportunity**

**Fund**

 

**Davis**

**Government****Bond Fund**

 

**Davis Government**

**Money Market****Fund**

 

**Davis**

**Financial****Fund**

 

**Davis**

**Appreciation& Income**

**Fund**

 

**Davis**

**Real Estate****Fund**

 

**OPERATIONS:**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

$

455,746

 

$

1,056,705

 

$

4,860,826

 

$

(2,933,485

)

$

5,545,884

 

$

8,131,272

 

Net realized gain (loss) from

investments and foreign

currency transactions

 

11,335,610

 

 

(811,806

)

 

–

 

 

3,832,203

 

 

9,109,960

 

 

44,031,123

 

Net change in unrealized

appreciation (depreciation) on

investments

 

44,965,985

 

 

(442,417

)

 

–

 

 

103,620,216

 

 

16,785,438

 

 

89,237,413

 

Net increase (decrease) in net

assets resulting from

operations

 

56,757,341

 

 

(197,518

)

 

4,860,826

 

 

104,518,934

 

 

31,441,282

 

 

141,399,808

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**DIVIDENDS AND**

**DISTRIBUTIONS TO**

**SHAREHOLDERS FROM:**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

–

 

 

(524,437

)

 

(4,324,920

)

 

–

 

 

(3,242,374

)

 

(5,409,746

)

Class B

 

–

 

 

(825,650

)

 

(460,928

)

 

–

 

 

(1,243,573

)

 

(1,807,079

)

Class C

 

–

 

 

(158,571

)

 

(74,978

)

 

–

 

 

(475,223

)

 

(1,105,564

)

Class Y

 

–

 

 

(6,543

)

 

–

 

 

–

 

 

(760,635

)

 

(1,592,398

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return of Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

–

 

 

(11,049)

 

 

–

 

 

–

 

 

–

 

 

–

 

Class B

 

–

 

 

(17,394)

 

 

–

 

 

–

 

 

–

 

 

–

 

Class C

 

–

 

 

(3,341)

 

 

–

 

 

–

 

 

–

 

 

–

 

Class Y

 

–

 

 

(138)

 

 

–

 

 

–

 

 

–

 

 

–

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**CAPITAL SHARE**

**TRANSACTION**:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in net

assets resulting from capital

share transactions (Note 5) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

76,403,515

 

 

(5,675,919

)

 

22,033,738

 

 

(14,714,722

)

 

22,939,552

 

 

55,916,138

 

Class B

 

(3,375,430

)

 

(26,549,215

)

 

(17,969,867

)

 

(57,150,094

)

 

1,150,314

 

 

(14,537,597

)

Class C

 

24,470,358

 

 

(6,073,516

)

 

(3,114,348

)

 

(14,994,142

)

 

7,243,485

 

 

10,424,182

 

Class Y

 

9,163,756

 

 

(38,399

)

 

–

 

 

(2,772,790

)

 

1,643,607

 

 

(488,828

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total increase (decrease)

in net assets

 

163,419,540

 

 

(40,081,690

)

 

949,523

 

 

14,887,186

 

 

58,696,435

 

 

182,798,916

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**NET ASSETS:**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning of year

 

366,620,106

 

 

100,934,846

 

 

571,431,255

 

 

959,933,352

 

 

236,606,670

 

 

412,205,334

 

End of year*

$

530,039,646

 

$

60,853,156

 

$

572,380,778

 

$

974,820,538

 

$

295,303,105

 

$

595,004,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Including undistributed

net investment income

(loss) of

$

368,690

 

$

–

 

$

–

 

$

(14,127

)

$

(284,185

)

$

(2,897,495

)

 

***See Notes to Financial Statements***

 

 

65

 

 

 

**DAVIS SERIES, INC.**

NOTES TO FINANCIAL STATEMENTS

December 31, 2005

 

**NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

Davis Series, Inc. (the “Company”) is registered under the Investment Company Act of 1940 (the “40 Act”) as amended, as an open-end management investment company.  Davis Opportunity Fund, Davis Government Bond Fund, Davis Government Money Market Fund, Davis Financial Fund, and Davis Appreciation & Income Fund are diversified under the 40 Act. Davis Real Estate Fund is non-diversified under the 40 Act.  The Company operates as a series issuing shares of common stock in the following six funds (collectively “the Funds”):

**Davis Opportunity Fund** seeks to achieve growth of capital.  It invests primarily in common stocks and other equity securities, and may invest in both domestic and foreign issuers. 

**Davis Government Bond Fund**seeks to achieve current income.  It invests in debt securities which are obligations of, or which are guaranteed by, the U.S. Government, its agencies or instrumentalities. Effective February 1, 2005, the Fund modified its investment strategy to maintain a weighted average maturity of three years or less.  Previously, the Fund sought to maintain a weighted average maturity of between three and ten years.

**Davis Government Money Market Fund** seeks to achieve as high a level of current income as is consistent with the principle of preservation of capital and maintenance of liquidity.  It invests in debt securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities and repurchase agreements involving such securities.  There is no assurance that the Fund will be able to maintain a stable net asset value of $1.00 per share.  

**Davis Financial Fund**seeks to achieve growth of capital.  It invests primarily in common stocks and other equity securities, and will concentrate investments in companies principally engaged in the banking and financial services industries.

**Davis Appreciation & Income Fund**seeks to achieve total return.  Under normal circumstances, the Fund invests in a diversified portfolio of convertible securities, common and preferred stock, and fixed income securities.  It may invest in lower rated bonds commonly known as "junk bonds”.

**Davis Real Estate Fund**seeks to achieve total return through a combination of growth and income.  It invests primarily in securities of companies principally engaged in or related to the real estate industry or which own significant real estate assets or which primarily invest in real estate financial instruments.

Because of the risk inherent in any investment program, the Company cannot ensure that the investment objective of any of its series will be achieved.

The Company accounts separately for the assets, liabilities and operations of each series.  Each series offers shares in four classes, Class A, Class B, Class C, and Class Y.  The Class A shares are sold with a front-end sales charge, except for shares of the Davis Government Money Market Fund which are sold at net asset value.  Class B and C shares are sold at net asset value and may be subject to a contingent deferred sales charge upon redemption. Class Y shares are sold at net asset value and are not subject to any contingent deferred sales charge. Class Y shares are only available to certain qualified investors.  Income, expenses (other than those attributable to a specific class), and gains and losses are allocated daily to each class of shares based upon the relative proportion of net assets represented by each class.  Operating expenses directly attributable to a specific classare charged against the operations of that class. All classes have identical rights with respect to voting (exclusive of each Class’ distribution arrangement), liquidation, and distributions.  The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements. 

 

66

 

 

 

**DAVIS SERIES, INC.**

NOTES TO FINANCIAL STATEMENTS – (Continued)

December 31, 2005 

 

**NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)**

 

**A.**   **VALUATION OF SECURITIES –********Portfolio securities listed on national securities exchanges are valued at the last reported sales price on the day of valuation.  Securities traded in the over the counter market and listed securities for which no sale was reported on that date are stated at the average of closing bid and asked prices.  Securities for which market quotations are not readily available, or whose values have been affected by a significant event occurring after the close of their primary markets, are valued at fair value as determined in good faith by the Board of Directors. Short-term obligations are valued at amortized cost, which approximates fair value.  The valuation procedures are reviewed and subject to approval by the Board of Directors.

 

**B.**     **MASTER REPURCHASE AGREEMENTS****–** The Funds, along with other affiliated funds, may transfer uninvested cash balances into one or more master repurchase agreement accounts.  These balances are invested in one or more repurchase agreements, secured by U.S. Government securities.  Securities pledged as collateral for repurchase agreements are held by a custodian bank until the agreements mature.  Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and principal; however, in the event of default by the other party to the agreement, retention of the collateral may be subject to legal proceedings.

 

**C.**    **CURRENCY TRANSLATION –** The market values of all assets and liabilities denominated in foreign currencies are recorded in the financial statements after translation to the U.S. dollar based upon the mean between the bid and offered quotations of the currencies against U.S. dollars on the date of valuation.  The cost basis of such assets and liabilities is determined based upon historical exchange rates.  Income and expenses are translated at average exchange rates in effect as accrued or incurred.

 

**D.**    **FOREIGN CURRENCY –**The Funds may enter into forward purchases or sales of foreign currencies to hedge certain foreign currency denominated assets and liabilities against declines in market value relative to the U.S. dollar.  Forward currency contracts are marked-to-market daily and the change in market value is recorded by the Funds as an unrealized gain or loss.  When the forward currency contract is closed, the Funds record a realized gain or loss equal to the difference between the value of the forward currency contract at the time it was opened and value at the time it was closed.  Investments in forward currency contracts may expose the Funds to risks resulting from unanticipated movements in foreign currency exchange rates or failure of the counter-party to the agreement to perform in accordancewith the terms of the contract.

 

Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund’s books, and the U.S. dollar equivalent of the amounts actually received or paid.  Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities at fiscal year end, resulting from changes in the exchange rate. The Funds include foreign currency gains and losses realized on the sale of investments together with market gains and losses on such investments in the statement of operations.

 

67

 

 

 

**DAVIS SERIES, INC.**

NOTES TO FINANCIAL STATEMENTS – (Continued)

December 31, 2005 

**NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)**

 

**E.**   **FEDERAL INCOME TAXES –** It is each Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income, including any net realized gains on investments not offset by loss carryovers, to shareholders.  Therefore, no provision for federal income or excise tax is required.  At December 31, 2005, Davis Government Bond Fund had approximately $91,000 of post October 2005 losses available to offset future capital gains if any, which expire in 2014. At December 31, 2005, Davis Opportunity Fund had approximately $5,831,000 of post October 2005 losses available to offset future capital gains if any, which expire in 2014.  At December 31, 2005, Davis Government Bond Fund had available for federal income taxpurposes unused capital loss carryforwards as follows:

 

 

 

**DAVIS**

**GOVERNMENT**

**BOND**

**FUND**

 

 

 

 

 

**Expiring**

 

 

 

 

 

 

 

 

 

 

12/31/2007

 

$

1,973,000

 

 

 

 

 

 

 

12/31/2008

 

 

906,000

 

 

 

 

 

 

 

12/31/2009

 

 

–

 

 

 

 

 

 

 

12/31/2010

 

 

–

 

 

 

 

 

 

 

12/31/2011

 

 

2,128,000

 

 

 

 

 

 

 

12/31/2012

 

 

1,243,000

 

 

 

 

 

 

 

12/31/2013

 

 

403,000

 

 

 

 

 

 

 

**Total**

 

$

6,653,000

 

 

 

 

 

 

 

 

 

**F.**     **USE OF ESTIMATES IN FINANCIAL STATEMENTS -**In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of income and expenses during the reporting period. Actual results may differ from these estimates.

 

**G.**    **INDEMNIFICATION -** Under the Funds’ organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Funds.  In addition, some of the Funds’ contracts with its service providers contain general indemnification clauses.  The Funds’ maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Funds cannot be determined and the Funds have no historical basis for predicting the likelihood of any such claims.

 

**H.**   **SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME -** Securities transactions are accounted for on the trade date (date the order to buy or sell is executed) with realized gain or loss on the sale of securities being determined based upon identified cost.  Dividend income is recorded on the ex-dividend date.  Interest income, which includes accretion of discount and amortization of premium, is accrued as earned.

 

68

 

 

 

**DAVIS SERIES, INC.**

NOTES TO FINANCIAL STATEMENTS – (Continued)

December 31, 2005 

**NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)**

 

**I.**     **DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -** Dividends and distributions to shareholders are recorded on the ex-dividend date. Net investment income (loss), net realized gains (losses), and net unrealized appreciation (depreciation) of investments may differ for financial statement and tax purposes primarily due to differing treatments of wash sales, paydowns on fixed income securities, foreign currency transactions, net operating losses, passive foreign investment company shares, distributions from real estate investment trusts, and distributions in connection with redemption of Fund shares. The character of dividends and distributions made during the fiscal year from net investment income and net realized securities gains may differ from their ultimate characterization for federal income taxpurposes.  Also, due to the timing of dividends and distributions, the fiscal year in which amounts are distributed may differ from the fiscal year in which income or realized gain was recorded by the Funds.  The Funds adjust the classification of distributions to shareholders to reflect the differences between financial statement amounts and distributions determined in accordance with income tax regulations. Accordingly, during the year ended December 31, 2005, for Davis Opportunity Fund, amounts have been reclassified to reflect a decrease in overdistributed net investment income of $958,938, an increase****in accumulated net realized loss of $4,335,304, and an increase in additional paid in capital of $3,376,366; for Davis Government Bond Fund, amounts have been reclassified to reflect a decrease****in overdistributed net investment income of $165,599 and a corresponding increase****in accumulated net realized loss; for Davis Financial Fund, amounts have been reclassified to reflect a decrease****in undistributed net investment loss****of $1,957,153, an increase****in accumulated net realized gain of $8,013, and a decrease in additional paid in capital of $1,965,166; for Davis Real Estate Fund, amounts have been reclassified to reflect an increase in overdistributed net investment income of $148,483 and a corresponding increase****in accumulated net realized gain.

 

The tax character of distributions paid during the years ended December 31, 2005 and 2004, was as follows:

 

 

Ordinary Income

Long-Term Capital Gain

Return of Capital

 

Total

 

 

 

 

 

Davis Opportunity Fund

 

 

 

 

2005

$   5,891,121

$ 17,346,140

$          –

$ 23,237,261

2004

–

–

–

–

Davis Government Bond Fund

 

 

 

 

2005

1,310,834

–

–

1,310,834

2004

1,515,201

–

31,922

1,547,123

Davis Government Money

Market Fund

 

 

 

 

2005

14,583,614

–

–

14,583,614

2004

4,860,826

–

–

4,860,826

Davis Financial Fund

 

 

 

 

2005

–

40,643,375

–

40,643,375

2004

–

–

–

–

Davis Appreciation & Income Fund

 

 

 

 

2005

6,763,230

8,704,128

–

15,467,358

2004

5,721,805

–

–

5,721,805

Davis Real Estate Fund

 

 

 

 

2005

13,698,151

47,724,732

–

61,422,883

2004

9,914,787

–

–

9,914,787

 

 

69

 

 

 

**DAVIS SERIES, INC.**

NOTES TO FINANCIAL STATEMENTS – (Continued)

December 31, 2005

 

**NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)**

 

As of December 31, 2005 the components of distributable earnings (accumulated losses) on a tax basis were as follows:

 

 

**Davis**

**Opportunity**

**Fund**

 

**Davis**

**Government Bond Fund**

 

**Davis**

**Financial Fund**

 

**Davis**

**Appreciation& Income**

**Fund**

 

**Davis**

**Real Estate Fund**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Undistrubuted net investment income

$

6,582,163

 

$

-

 

$

-

 

$

8,833

 

$

3,263,357

 

Accumulated net realized losses from investments and foreign currency transactions

 

(5,830,871

)

 

(6,743,657

)

 

-

 

 

-

 

 

-

 

Undistributed long term capital gain

 

-

 

 

–

 

 

4,049,826

 

 

5,521,244

 

 

34,015,141

 

Net unrealized appreciation (depreciation) on investments

 

140,859,601

 

 

(707,828

)

 

459,836,023

 

 

55,075,988

 

 

191,811,446

 

Total

$

141,610,893

 

$

(7,451,485

)

$

463,885,849

 

$

60,606,065

 

$

229,089,944

 

 

**NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES**

 

Advisory fees are paid monthly to Davis Advisors, the Funds’ investment adviser (the “Adviser”).  The fee for the Davis Government Money Market Fund is 0.50% of the first $250 million of average net assets, 0.45% of the next $250 million of average net assets, and 0.40% of average net assets in excess of $500 million.  Until February 1, 2005, the fee for the Davis Government Bond Fund was 0.50% of average net assets. Effective February 1, 2005, the fee for the Davis Government Bond Fund is 0.30% of average net assets. The fee for each of the Davis Opportunity Fund, Davis Financial Fund, Davis Appreciation & Income Fund, and Davis Real Estate Fund is 0.75% of the average net assets for the first $250 million, 0.65% of the average net assets on the next $250 million, and 0.55% of the average net assets in excess of $500 million.  Advisory fees paid during the year endedDecember 31, 2005, approximated 0.67%, 0.32%, 0.47%, 0.63%, 0.72%, and 0.67% of average net assets for the Davis Opportunity Fund, Davis Government Bond Fund, Davis Government Money Market Fund, Davis Financial Fund, Davis Appreciation & Income Fund, and Davis Real Estate Fund, respectively.

 

Boston Financial Data Services, Inc. (“BFDS”) is the Funds’ primary transfer agent.  The Adviser is also paid for certain transfer agent services. The fee for these services for the year ended December 31, 2005 for the Davis Opportunity Fund, Davis Government Bond Fund, Davis Government Money Market Fund, Davis Financial Fund, Davis Appreciation & Income Fund, and Davis Real Estate Fund amounted to $52,663, $6,865, $12,397, $86,137, $24,344, and $40,068, respectively.  State Street Bank and Trust Company (“State Street Bank”) is the Funds’ primary accounting provider.  Fees for such services are included in the custodian fee as State Street Bank also serves as the Funds’ custodian.  The Adviser is also paid for certain accounting services.  The fee for these services for the year ended December 31, 2005 for the Davis Opportunity Fund, DavisGovernment Bond Fund, Davis Government Money Market Fund, Davis Financial Fund, Davis Appreciation & Income Fund, and Davis Real Estate Fund amounted to $6,504, $2,496, $37,500, $14,496, $7,500, and $9,504, respectively.  Certain directors and officers of the Funds are also directors and officers of the general partner of the Adviser.

 

Davis Selected Advisers-NY, Inc. (“DSA-NY”), a wholly-owned subsidiary of the Adviser, acts as sub-adviser to the Funds.  DSA-NY performs research and portfolio management services for the Funds under a Sub-Advisory Agreement with the Adviser.  The Funds pay no fees directly to DSA-NY.

 

70

 

 

 

**DAVIS SERIES, INC.**

NOTES TO FINANCIAL STATEMENTS – (Continued)

December 31, 2005

 

**NOTE 3 - DISTRIBUTION AND UNDERWRITING FEES**

 

**CLASS A SHARES OF THE DAVIS OPPORTUNITY FUND, DAVIS GOVERNMENT BOND FUND, DAVIS FINANCIAL FUND, DAVIS APPRECIATION & INCOME FUND, AND DAVIS REAL ESTATE FUND**

 

Class A shares of the Funds are sold at net asset value plus a sales charge and are redeemed at net asset value.

During the year ended December 31, 2005, Davis Distributors, LLC, the Funds’ Underwriter (the “Underwriter” or “Distributor”) received $1,298,668, $28,072, $346,408, $725,777, and $714,325 from commissions earned on sales of Class A shares of the Davis Opportunity Fund, Davis Government Bond Fund, Davis Financial Fund, Davis Appreciation & Income Fund, and Davis Real Estate Fund, respectively, of which $197,196, $4,603, $49,456, $113,349, and $112,274 was retained by the Underwriter and the remaining $1,101,472, $23,469, $296,952, $612,428, and $602,051 was re-allowed to investment dealers. The Underwriter paid the costs of prospectuses in excess of those required to be filed as part of the Funds’ registration statement, sales literature, and other expenses assumed or incurred by it in connection with such sales.

The Underwriter is reimbursed for amounts paid to dealers as a service fee or commissions with respect to Class A shares sold by dealers which remain outstanding during the period. The service fee is paid at the annual rate up to 1/4 of 1% of the average net assets maintained by the responsible dealers. The service fee for Class A shares of the Davis Opportunity Fund, Davis Government Bond Fund, Davis Financial Fund, Davis Appreciation & Income Fund, and Davis Real Estate Fund for the year ended December 31, 2005 was $942,831, $42,102, $1,064,214, $336,931, and $814,847, respectively.

**CLASS B SHARES OF THE DAVIS OPPORTUNITY FUND, DAVIS GOVERNMENT BOND FUND, DAVIS FINANCIAL FUND, DAVIS APPRECIATION & INCOME FUND, AND DAVIS REAL ESTATE FUND**

Class B shares of the Funds are sold at net asset value and are redeemed at net asset value.  A contingent deferred sales charge may be assessed on shares redeemed within six years of purchase.

Each of the Class B shares of the Funds (other than Davis Government Money Market Fund) pay a distribution fee to reimburse the Distributor for commission advances on the sale of each Fund's Class B shares. Payments under the Class B Distribution Plan are limited to an annual rate of equal to the lesser of 1.25% of the average daily net asset value of the Class B shares or the maximum amount provided by applicable rule or regulation of the National Association of Securities Dealers, Inc., ("NASD"), which currently is 1.00%.  Therefore, the effective rate of the Class B Distribution Plan is currently 1%, of which 0.75% may be used to pay distribution expenses and 0.25% may be used to pay shareholder service fees.  The NASD rules also limit the aggregate amount the Funds may pay for distribution to 6.25% of gross Funds sales since inception of the Distribution Plans plus interest at 1%over the prime rate on unpaid amounts.  The Distributor intends to seek full payment (plus interest at prime rate plus 1%) of distribution charges that exceed the 1% annual limit in some future period or periods when the plan limits have not been reached

 

71

 

 

 

**DAVIS SERIES, INC.**

NOTES TO FINANCIAL STATEMENTS – (Continued)

December 31, 2005

 

**NOTE 3 - DISTRIBUTION AND UNDERWRITING FEES - (Continued)**

 

During the year ended December 31, 2005, Class B shares of the Davis Opportunity Fund, Davis Government Bond Fund, Davis Financial Fund, Davis Appreciation & Income Fund, and Davis Real Estate Fund made distribution plan payments which included distribution fees of $753,308, $224,820, $1,731,272, $597,281, and $771,316, respectively and service fees of $248,632, $74,654, $570,544, $197,665, and $254,442, respectively.

 

Commission advances by the Distributor during the year ended December 31, 2005 on the sale of Class B shares of the Davis Opportunity Fund, Davis Government Bond Fund, Davis Financial Fund, Davis Appreciation & Income Fund, and Davis Real Estate Fund amounted to $290,075, $9,893, $101,753, $216,255, and $176,043, respectively, all of which was reallowed to qualified selling dealers.

 

The Distributor intends to seek payment from Class B shares of the Davis Opportunity Fund, Davis Government Bond Fund, Davis Financial Fund, Davis Appreciation & Income Fund, and Davis Real Estate Fund in the amounts of $2,616,863, $4,906,444, $24,727,987, $7,338,529, and $14,192,884, respectively, representing the cumulative commission advances by the Distributor on the sale of the Funds' Class B shares, plus interest, reduced by cumulative distribution fees paid by the Funds and cumulative contingent deferred sales charges paid by redeeming shareholders.  The Funds have no contractual obligation to pay any such distribution charges****and the amounts, if any, timing and condition of such payments are solely within the discretion of the Directors who are not interested persons of the Funds or the Distributor.

 

A contingent deferred sales charge is imposed upon redemption of certain Class B shares of the Funds within six years of the original purchase. The charge is a declining percentage starting at 4% of the lesser of net asset value of the shares redeemed or the total cost of such shares.  During the year ended December 31, 2005, the Distributor received contingent deferred sales charges from Class B shares of the Davis Opportunity Fund, Davis Government Bond Fund, Davis Financial Fund, Davis Appreciation & Income Fund, and Davis Real Estate Fund of $112,625, $80,611, $273,124, $88,409, and $89,414, respectively.

 

**CLASS C SHARES OF THE DAVIS OPPORTUNITY FUND, DAVIS GOVERNMENT BOND FUND, DAVIS FINANCIAL FUND, DAVIS APPRECIATION & INCOME FUND, AND DAVIS REAL ESTATE FUND**

 

Class C shares of the Funds are sold at net asset value and are redeemed at net asset value less a contingent deferred sales charge of 1% if redeemed within one year of purchase. Payments under the Class C Distribution Plan are limited to an annual rate of equal to the lesser of 1.25% of the average daily net asset value of the Class C shares or the maximum amount provided by applicable rule or regulation of the National Association of****Securities Dealers, Inc., ("NASD"), which currently is 1.00%.  Therefore, the effective rate of the Class C Distribution Plan is currently 1%, of which 0.75% may be used to pay distribution expenses and 0.25% may be used to pay shareholder service fees.  Class C shares are subject to the same 6.25% and 1% limitations applicable to the Class B Distribution Plan.

 

72

 

 

 

**DAVIS SERIES, INC.**

NOTES TO FINANCIAL STATEMENTS – (Continued)

December 31, 2005

**NOTE 3 - DISTRIBUTION AND UNDERWRITING FEES - (Continued)**

 

During the year ended December 31, 2005, Class C shares of the Davis Opportunity Fund, Davis Government Bond Fund, Davis Financial Fund, Davis Appreciation & Income Fund, and Davis Real Estate Fund made distribution fees of $864,000, $46,122, $711,977, $330,317, and $678,346, respectively and service fees of $288,000, $15,374, $237,325, $110,105, and $226,115.  During the year ended December 31, 2005, the Distributor received $17,764, $1,287, $3,755, $7,281, and $13,193 in contingent deferred sales charges from Class C shares of the Davis Opportunity Fund, Davis Government Bond Fund, Davis Financial Fund, Davis Appreciation & Income Fund, and Davis Real Estate Fund, respectively.

 

**DAVIS GOVERNMENT MONEY MARKET FUND**

 

All classes of shares of the Davis Government Money Market Fund are sold to investors at net asset value.  The shareholders of the Davis Government Money Market Fund have adopted a Distribution expense plan in accordance with Rule 12b-1, which does not provide for any amounts to be paid directly to the Distributor as either compensation or reimbursement for distributing shares of the Fund, but does authorize the use of the advisory fee to the extent such fee may be considered to be indirectly financing any activity or expense which is primarily intended to result in the sale of Fund shares.

 

**NOTE 4 - PURCHASES AND SALES OF SECURITIES**

 

Purchases and sales of investment securities (excluding short-term securities) during the year ended December 31, 2005 for the Davis Opportunity Fund, Davis Government Bond Fund, Davis Financial Fund, Davis Appreciation & Income Fund, and Davis Real Estate Fund were as follows:

 

**Davis**

**Opportunity**

**Fund**

 

**Davis**

**Government Bond Fund**

 

**Davis**

**Financial**

**Fund**

 

**Davis**

**Appreciation**

**& Income**

**Fund**

 

**Davis**

**Real Estate Fund**

 

Cost of purchases

$

403,889,936

 

$

28,525,178

 

$

46,660,462

 

$

59,358,707

 

$

140,918,112

 

Proceeds of sales

$

208,803,792

 

$

32,256,837

 

$

173,258,171

 

$

44,627,888

 

$

181,983,105

 

 

 

73

 

 

 

**DAVIS SERIES, INC.**

NOTES TO FINANCIAL STATEMENTS

December 31, 2005

 

**NOTE 5 – CAPITAL STOCK**

 

At December 31, 2005, there were 10 billion shares of capital stock ($0.01 par value per share) authorized of which 550 million shares each are designated to the Davis Opportunity Fund, Davis Government Bond Fund, Davis Financial Fund, Davis Appreciation & Income Fund, and Davis Real Estate Fund, and 4.1 billion shares are designated to the Davis Government Money Market Fund. Transactions in capital stock were as follows: 

 

**CLASS A**

**Year ended December 31, 2005**

 

**Davis**

**Opportunity**

**Fund**

 

**Davis**

**Government Bond Fund**

 

**Davis Government**

**Money Market Fund**

 

**Davis**

**Financial Fund**

 

**Davis**

**Appreciation& Income**

**Fund**

 

**Davis**

**Real Estate Fund**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares sold

 

7,474,120

 

 

1,195,213

 

 

523,985,374

 

 

2,416,490

 

 

3,262,203

 

 

2,626,293

 

Shares issued in reinvestment

of distributions

 

614,243

 

 

80,966

 

 

13,239,222

 

 

590,153

 

 

269,698

 

 

863,281

 

 

 

8,088,363

 

 

1,276,179

 

 

537,224,596

 

 

3,006,643

 

 

3,531,901

 

 

3,489,574

 

Shares redeemed

 

(3,250,613

)

 

(1,157,922

)

 

(583,813,714

)

 

(2,761,678

)

 

(934,775

)

 

(2,158,861

)

Net increase (decrease)

 

4,837,750

 

 

118,257

 

 

(46,589,118

)

 

244,965

 

 

2,597,126

 

 

1,330,713

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from shares sold

$

177,189,366

 

$

6,626,788

 

$

523,985,374

 

$

99,045,919

 

$

89,889,050

 

$

103,892,344

 

Proceeds from shares issued in 

reinvestment of distributions

 

14,784,827

 

 

448,555

 

 

13,239,222

 

 

25,234,942

 

 

7,503,464

 

 

34,735,967

 

 

 

191,974,193

 

 

7,075,343

 

 

537,224,596

 

 

124,280,861

 

 

97,392,514

 

 

138,628,311

 

Cost of shares redeemed

 

(77,326,453

)

 

(6,416,000

)

 

(583,813,714

)

 

(111,751,665

)

 

(25,779,954

)

 

(85,968,700

)

Net increase (decrease)

$

114,647,740

 

$

659,343

 

$

(46,589,118

)

$

12,529,196

 

$

71,612,560

 

$

52,659,611

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**CLASS A**

**Year ended December 31, 2004**

 

**Davis**

**Opportunity Fund**

 

**Davis**

**Government Bond Fund**

 

**Davis Government**

**Money Market Fund**

 

**Davis**

**Financial Fund**

 

**Davis**

**Appreciation& Income**

**Fund**

 

**Davis**

**Real Estate Fund**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares sold

 

5,947,705

 

 

818,851

 

 

477,407,253

 

 

2,360,132

 

 

1,473,357

 

 

3,375,894

 

Shares issued in reinvestment

of distributions

 

–

 

 

78,776

 

 

4,284,733

 

 

–

 

 

114,054

 

 

145,405

 

 

 

5,947,705

 

 

897,627

 

 

481,691,986

 

 

2,360,132

 

 

1,587,411

 

 

3,521,299

 

Shares redeemed

 

(2,355,653

)

 

(1,897,961

)

 

(459,658,248

)

 

(2,767,530

)

 

(714,743

)

 

(1,875,358

)

Net increase (decrease)

 

3,592,052

 

 

(1,000,334

)

 

22,033,738

 

 

(407,398

)

 

872,668

 

 

1,645,941

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from shares sold

$

125,781,889

 

$

4,632,306

 

$

477,407,253

 

$

90,445,659

 

$

38,248,105

 

$

111,968,065

 

Proceeds from shares issued in 

reinvestment of distributions

 

–

 

 

446,234

 

 

4,284,733

 

 

–

 

 

2,961,362

 

 

5,075,111

 

 

 

125,781,889

 

 

5,078,540

 

 

481,691,986

 

 

90,445,659

 

 

41,209,467

 

 

117,043,176

 

Cost of shares redeemed

 

(49,378,374

)

 

(10,754,459

)

 

(459,658,248

)

 

(105,160,381

)

 

(18,269,915

)

 

(61,127,038

)

Net increase (decrease)

$

76,403,515

 

$

(5,675,919

)

$

22,033,738

 

$

(14,714,722

)

$

22,939,552

 

$

55,916,138

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

74

 

 

 

**DAVIS SERIES, INC.**

NOTES TO FINANCIAL STATEMENTS

December 31, 2005

 

**NOTE 5 – CAPITAL STOCK – (Continued)**

 

**CLASS B**

**Year ended December 31, 2005**

 

**Davis**

**Opportunity**

**Fund**

 

**Davis**

**Government Bond Fund**

 

**Davis Government**

**Money Market Fund**

 

**Davis**

**Financial Fund**

 

**Davis**

**Appreciation& Income**

**Fund**

 

**Davis**

**Real Estate Fund**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares sold

 

804,095

 

 

1,397,765

 

 

19,867,409

 

 

123,761

 

 

550,055

 

 

204,563

 

Shares issued in reinvestment

of distributions

 

123,661

 

 

89,776

 

 

1,001,610

 

 

218,032

 

 

88,627

 

 

187,101

 

 

 

927,756

 

 

1,487,541

 

 

20,869,019

 

 

341,793

 

 

638,682

 

 

391,664

 

Shares redeemed

 

(1,539,731

)

 

(3,144,641

)

 

(32,598,710

)

 

(2,678,426

)

 

(880,536

)

 

(1,408,247

)

Net decrease

 

(611,975

)

 

(1,657,100

)

 

(11,729,691

)

 

(2,336,633

)

 

(241,854

)

 

(1,016,583

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from shares sold

$

16,836,360

 

$

7,737,383

 

$

19,867,409

 

$

4,689,609

 

$

14,970,621

 

$

7,966,899

 

Proceeds from shares issued in 

reinvestment of distributions

 

2,629,047

 

 

496,196

 

 

1,001,610

 

 

8,544,698

 

 

2,439,268

 

 

7,479,288

 

 

 

19,465,407

 

 

8,233,579

 

 

20,869,019

 

 

13,234,307

 

 

17,409,889

 

 

15,446,187

 

Cost of shares redeemed

 

(32,286,460

)

 

(17,395,535

)

 

(32,598,710

)

 

(100,730,606

)

 

(24,135,089

)

 

(55,616,913

)

Net decrease

$

(12,821,053

)

$

(9,161,956

)

$

(11,729,691

)

$

(87,496,299

)

$

(6,725,200

)

$

(40,170,726

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**CLASS B**

**Year ended December 31, 2004**

 

**Davis**

**Opportunity**

**Fund**

 

**Davis**

**Government Bond Fund**

 

**Davis Government**

**Money Market Fund**

 

**Davis**

**Financial Fund**

 

**Davis**

**Appreciation& Income**

**Fund**

 

**Davis**

**Real Estate Fund**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares sold

 

1,009,859

 

 

927,957

 

 

27,958,920

 

 

277,785

 

 

666,371

 

 

575,068

 

Shares issued in reinvestment

of distributions

 

–

 

 

113,715

 

 

407,051

 

 

–

 

 

40,276

 

 

45,100

 

 

 

1,009,859

 

 

1,041,672

 

 

28,365,971

 

 

277,785

 

 

706,647

 

 

620,168

 

Shares redeemed

 

(1,195,009

)

 

(5,746,211

)

 

(46,335,838

)

 

(1,894,047

)

 

(663,569

)

 

(1,082,733

)

Net increase (decrease)

 

(185,150

)

 

(4,704,539

)

 

(17,969,867

)

 

(1,616,262

)

 

43,078

 

 

(462,565

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from shares sold

$

19,064,666

 

$

5,255,340

 

$

27,958,920

 

$

9,892,462

 

$

16,953,880

 

$

19,044,307

 

Proceeds from shares issued in 

reinvestment of distributions

 

–

 

 

643,702

 

 

407,051

 

 

–

 

 

1,030,797

 

 

1,549,373

 

 

 

19,064,666

 

 

5,899,042

 

 

28,365,971

 

 

9,892,462

 

 

17,984,677

 

 

20,593,680

 

Cost of shares redeemed

 

(22,440,096

)

 

(32,448,257

)

 

(46,335,838

)

 

(67,042,556

)

 

(16,834,363

)

 

(35,131,277

)

Net increase (decrease)

$

(3,375,430

)

$

(26,549,215

)

$

(17,969,867

)

$

(57,150,094

)

$

1,150,314

 

$

(14,537,597

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

75

 

 

 

**DAVIS SERIES, INC.**

NOTES TO FINANCIAL STATEMENTS

December 31, 2005

 

**NOTE 5 – CAPITAL STOCK – (Continued)**

 

**CLASS C**

**Year ended December 31, 2005**

 

**Davis**

**Opportunity**

**Fund**

 

**Davis**

**Government Bond Fund**

 

**Davis Government**

**Money Market Fund**

 

**Davis**

**Financial Fund**

 

**Davis**

**Appreciation& Income**

**Fund**

 

**Davis**

**Real Estate Fund**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares sold

 

2,929,518

 

 

543,976

 

 

7,107,917

 

 

227,352

 

 

893,529

 

 

492,010

 

Shares issued in reinvestment

of distributions

 

173,609

 

 

18,894

 

 

166,947

 

 

102,004

 

 

58,122

 

 

193,759

 

 

 

3,103,127

 

 

562,870

 

 

7,274,864

 

 

329,356

 

 

951,651

 

 

685,769

 

Shares redeemed

 

(709,529

)

 

(782,833

)

 

(8,116,190

)

 

(640,443

)

 

(230,964

)

 

(516,717

)

Net increase (decrease)

 

2,393,598

 

 

(219,963

)

 

(841,326

)

 

(311,087

)

 

720,687

 

 

169,052

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from shares sold

$

64,264,886

 

$

3,015,124

 

$

7,107,917

 

$

8,691,343

 

$

24,810,716

 

$

19,333,702

 

Proceeds from shares issued in 

reinvestment of distributions

 

3,852,380

 

 

104,752

 

 

166,947

 

 

4,062,791

 

 

1,624,027

 

 

7,811,945

 

 

 

68,117,266

 

 

3,119,876

 

 

7,274,864

 

 

12,754,134

 

 

26,434,743

 

 

27,145,647

 

Cost of shares redeemed

 

(15,417,310

)

 

(4,339,153

)

 

(8,116,190

)

 

(24,396,916

)

 

(6,379,437

)

 

(20,764,643

)

Net increase (decrease)

$

52,699,956

 

$

(1,219,277

)

$

(841,326

)

$

(11,642,782

)

$

20,055,306

 

$

6,381,004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**CLASS C**

**Year ended December 31, 2004**

 

**Davis**

**Opportunity**

**Fund**

 

**Davis**

**Government Bond Fund**

 

**Davis Government**

**Money Market Fund**

 

**Davis**

**Financial Fund**

 

**Davis**

**Appreciation& Income**

**Fund**

 

**Davis**

**Real Estate Fund**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares sold

 

1,669,316

 

 

230,729

 

 

7,513,060

 

 

329,707

 

 

494,527

 

 

643,004

 

Shares issued in reinvestment

of distributions

 

–

 

 

22,254

 

 

63,889

 

 

–

 

 

15,533

 

 

27,792

 

 

 

1,669,316

 

 

252,983

 

 

7,576,949

 

 

329,707

 

 

510,060

 

 

670,796

 

Shares redeemed

 

(427,329

)

 

(1,321,274

)

 

(10,691,297

)

 

(747,263

)

 

(235,154

)

 

(375,566

)

Net increase (decrease)

 

1,241,987

 

 

(1,068,291

)

 

(3,114,348

)

 

(417,556

)

 

274,906

 

 

295,230

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from shares sold

$

32,862,166

 

$

1,309,046

 

$

7,513,060

 

$

11,933,190

 

$

12,843,318

 

$

21,689,773

 

Proceeds from shares issued in 

reinvestment of distributions

 

–

 

 

126,445

 

 

63,889

 

 

–

 

 

403,412

 

 

965,967

 

 

 

32,862,166

 

 

1,435,491

 

 

7,576,949

 

 

11,933,190

 

 

13,246,730

 

 

22,655,740

 

Cost of shares redeemed

 

(8,391,808

)

 

(7,509,007

)

 

(10,691,297

)

 

(26,927,332

)

 

(6,003,245

)

 

(12,231,558

)

Net increase (decrease)

$

24,470,358

 

$

(6,073,516

)

$

(3,114,348

)

$

(14,994,142

)

$

7,243,485

 

$

10,424,182

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

76

 

 

 

**DAVIS SERIES, INC.**

NOTES TO FINANCIAL STATEMENTS

December 31, 2005

 

**NOTE 5 – CAPITAL STOCK – (Continued)**

 

**CLASS Y**

**Year ended December 31, 2005**

 

**Davis**

**Opportunity**

**Fund**

 

**Davis**

**Government Bond Fund**

 

**Davis**

**Financial Fund**

 

**Davis**

**Appreciation& Income**

**Fund**

 

**Davis**

**Real Estate Fund**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares sold

 

1,498,422

 

 

4,262

 

 

109,142

 

 

217,671

 

 

164,400

 

Shares issued in reinvestment

of distributions

 

43,992

 

 

816

 

 

10,606

 

 

56,309

 

 

195,883

 

 

 

1,542,414

 

 

5,078

 

 

119,748

 

 

273,980

 

 

360,283

 

Shares redeemed

 

(258,467

)

 

(23,255

)

 

(85,605

)

 

(46,900

)

 

(147,583

)

Net increase (decrease)

 

1,283,947

 

 

(18,177

)

 

34,143

 

 

227,080

 

 

212,700

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from shares sold

$

36,772,410

 

$

23,808

 

$

4,500,930

 

$

6,074,519

 

$

6,759,625

 

Proceeds from shares issued in 

reinvestment of distributions

 

1,087,489

 

 

4,560

 

 

460,920

 

 

1,571,611

 

 

7,940,229

 

 

 

37,859,899

 

 

28,368

 

 

4,961,850

 

 

7,646,130

 

 

14,699,854

 

Cost of shares redeemed

 

(6,318,235

)

 

(129,880

)

 

(3,542,323

)

 

(1,300,264

)

 

(6,038,008

)

Net increase (decrease)

$

31,541,664

 

$

(101,512

)

$

1,419,527

 

$

6,345,866

 

$

8,661,846

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**CLASS Y**

**Year ended December 31, 2004**

 

**Davis**

**Opportunity**

**Fund**

 

**Davis**

**Government Bond Fund**

 

**Davis**

**Financial Fund**

 

**Davis**

**Appreciation& Income**

**Fund**

 

**Davis**

**Real Estate Fund**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares sold

 

689,645

 

 

13,490

 

 

31,662

 

 

59,811

 

 

54,043

 

Shares issued in reinvestment

of distributions

 

–

 

 

802

 

 

–

 

 

28,568

 

 

44,657

 

 

 

689,645

 

 

14,292

 

 

31,662

 

 

88,379

 

 

98,700

 

Shares redeemed

 

(277,719

)

 

(21,004

)

 

(103,910

)

 

(26,322

)

 

(119,648

)

Net increase (decrease)

 

411,926

 

 

(6,752

)

 

(72,248

)

 

62,057

 

 

(20,948

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from shares sold

$

15,130,205

 

$

77,500

 

$

1,232,991

 

$

1,582,464

 

$

1,868,363

 

Proceeds from shares issued in 

reinvestment of distributions

 

–

 

 

4,566

 

 

–

 

 

744,839

 

 

1,563,965

 

 

 

15,130,205

 

 

82,066

 

 

1,232,991

 

 

2,327,303

 

 

3,432,328

 

Cost of shares redeemed

 

(5,966,449

)

 

(120,465

)

 

(4,005,781

)

 

(683,696

)

 

(3,921,156

)

Net increase (decrease)

$

9,163,756

 

$

(38,399

)

$

(2,772,790

)

$

1,643,607

 

$

(488,828

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

77

 

 

 

**DAVIS SERIES, INC.**

**NOTES TO FINANCIAL STATEMENTS – (Continued)**

December 31, 2005

**NOTE 6 - EXPENSES PAID INDIRECTLY**

 

Under an agreement with the custodian bank, custody fees are reduced by credits for cash balances.  Such reductions amounted to $1,286, $39, $239, $424, $415, and $42 for Davis Opportunity Fund, Davis Government Bond Fund, Davis Government Money Market Fund, Davis Financial Fund, Davis Appreciation & Income Fund, and Davis Real Estate Fund, respectively, during the year ended December 31, 2005.

 

**NOTE 7 - BANK BORROWINGS**

 

Each Fund may borrow up to 5% of its assets from a bank to purchase portfolio securities, or for temporary and emergency purposes. The purchase of securities with borrowed funds creates leverage in the Fund. Each Fund has entered into an agreement, which enables it to participate with certain other funds managed by the Adviser in an unsecured line of credit with a bank, which permits borrowings up to $50 million, collectively.  Interest is charged based on its borrowings, at a rate equal to the overnight Federal Funds Rate plus 0.75%.  At December 31, 2005, Davis Financial Fund had no borrowings outstanding.  For the year ended December 31, 2005, the average daily loan balance was $840,512 at an average interest rate of 3.9309%.  Davis Financial Fund had gross borrowings and gross repayments of $68,890,000 and $70,070,000, respectively, during the year ended December 31, 2005.  Themaximum amount of borrowings outstanding at any month end was $2,204,000. Davis Opportunity Fund, Davis Government Bond Fund, Davis Government Money Market Fund, Davis Appreciation & Income Fund, and Davis Real Estate Fund had no borrowings outstanding for the year ended December 31, 2005.

 

**NOTE 8 – OPTION ACTIVITY**

 

Each Fund may purchase or sell options (including “put options”) to pursue its investment objective or for hedging purposes. When selling a put option, the purchaser receives the right to sell, and the writer (the Fund) the obligation to buy, the underlying investment at the exercise price during the option period.

 

When writing a put option on a security, to secure its obligation to pay for the underlying security, each Fund will deposit, in escrow, liquid assets with a value equal to or greater than the exercise price of the underlying securities. Each Fund therefore, foregoes the opportunity of investing the segregated assets. The premium each Fund receives from writing a put option represents a profit, as long as the price of the underlying investment remains equal to or above the exercise price of the put. However, each Fund also assumes the obligation, during the option period, to buy the underlying investment from the buyer of the put at the exercise price, even if the value of the investment falls below the exercise price. See the Statement of Additional Information for more information concerning the Funds’ use of options. 

 

Options are valued daily based upon the Funds’ valuation procedures (Note 1) and unrealized appreciation or depreciation is recorded. Each Fund will realize a gain or loss upon the expiration or closing of the option transaction. Put options written are reported as a liability in the Statement of Assets and Liabilities.  Realized and unrealized gains and losses are reported in the Statement of Operations.

 

 

78

 

 

 

**DAVIS SERIES, INC.**

**NOTES TO FINANCIAL STATEMENTS – (Continued)**

December 31, 2005 

**NOTE 8 – OPTION ACTIVITY – (Continued)**

 

Written put option activity for the year ended December 31, 2005 was as follows:

 

 

**Davis Opportunity Fund**

 

Number of Contracts

 

Amount of Premiums

 

Options outstanding as of December 31, 2004

235

 

$

476,158

 

Options written

–

 

 

–

 

Options closed or expired

(235

)

 

(476,158

)

Options exercised

–

 

 

–

 

Options outstanding as of December 31, 2005

–

 

$

–

 

 

**NOTE 9 - ILLIQUID SECURITIES**

 

Securities may be considered illiquid if they lack a readily available market or if valuation has not changed for a certain period of time.  The aggregate value of illiquid securities in Davis Opportunity Fund and Davis Appreciation & Income Fund amounted to $5,897,920 or 0.79% and $27,738,180 or 7.07% of the Fund’s net assets, respectively, as of December 31, 2005.

Fund

 

Security

 

Acquisition

Date

 

Principal

 

Units

 

Cost per

Unit

 

Valuation per Unit as of 

December 31, 

2005

Davis Opportunity Fund

 

Level 3 Communications, Inc., Conv. Sr. Notes, 10.00%, 05/01/11

 

4/04/05

 

$

5,600,000

 

56,000

 

$

100.00

 

$

105.32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Davis Appreciation & Income Fund

 

Lehman Brothers Holdings Inc., Conv. Notes, (Convertible into Devon Energy Corp.), 0.25%, 08/23/11

 

8/16/04

 

$

12,400,000

 

124,000

 

$

100.00

 

$

160.86

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Davis Appreciation & Income Fund

 

Providian Financial Corp., Conv. Notes, Zero Cpn., 6.58%, 02/15/21

 

4/12/02

 

$

14,200,000

 

142,000

 

$

100.00

 

$

54.87

 

**NOTE 10 – PAYMENTS BY AFFILIATES**

 

The Adviser voluntarily reimbursed each Fund for balance earnings credits on certain Fund demand deposit accounts held at BFDS during the period January 1, 2001 to May 31, 2005.  These credits were previously retained by BFDS and not directly transferred to the Funds.  The amount paid to Davis Opportunity Fund, Davis Government Bond Fund, Davis Government Money Market Fund, Davis Financial Fund, Davis Appreciation & Income Fund, and Davis Real Estate Fund amounted to $43,053, $10,048, $21,066, $159,351, $20,919, and $49,286, respectively.

 

79

 

 

 

**DAVIS SERIES, INC.**

**NOTES TO FINANCIAL STATEMENTS – (Continued)**

December 31, 2005

 

**NOTE 11– LITIGATION MATTERS**

 

On June 2, 2004, a proposed class action lawsuit was filed in the United States District Court for the Southern District of New York on behalf of investors in certain mutual funds (“Funds”) managed by Davis Selected Advisers L.P. (“Davis Advisors”) including the Davis Funds. The plaintiffs claim that Davis Advisors and its affiliates, and the individual directors of the Funds (collectively the “Defendants”) used Fund assets to pay brokers to market the Funds and that the Defendants disguised such payments as brokerage commissions and further failed to disclose such payments in public filings or elsewhere. The lawsuit seeks damages of unspecified amounts. Three substantially identical proposed class action lawsuits were filed against the Defendants later in June and July 2004 in the United States District Court for the Southern District of New York. All foursuits were consolidated into a single action. In October 2005, the District Court issued an order dismissing the consolidated amended class action complaint.  The plaintiffs subsequently sought a motion for reconsideration, which was denied in November 2005.  In December 2005, the plaintiffs filed an appeal with the United States Court of Appeals for the Second Circuit.   Davis Advisors believes the actions are without merit and the Defendants intend to vigorously defend the proceedings. Although no determination can be made at this time, the Funds do not expect this lawsuit to have a material adverse effect on the assets or results of the Funds.

 

 

80

 

 

 

**DAVIS SERIES, INC.**

FINANCIAL HIGHLIGHTS 

**DAVIS OPPORTUNITY FUND**

 

The following financial information represents selected data for each share of capital stock outstanding throughout each period:

 

**Class A**

**Year ended December 31,**

 

 

**2005**

 

**2004**

 

**2003**

 

**2002**

 

**2001**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, Beginning of Period

$

23.20

 

$

20.47

 

$

14.53

 

$

16.81

 

$

18.60

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) From Investment Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Income (Loss)

 

0.05

3

 

0.08

 

 

(0.07

)

 

(0.07

)

 

(0.07

)

Net Realized and Unrealized Gains (Losses)

 

1.88

 

 

2.65

 

 

6.01

 

 

(2.21

)

 

(1.44

)

Total From Investment Operations

 

1.93

 

 

2.73

 

 

5.94

 

 

(2.28

)

 

(1.51

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends and Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from Net Investment Income

 

(0.24

)

 

–

 

 

–

 

 

–

 

 

–

 

Distributions from Realized Gains

 

(0.60

)

 

–

 

 

–

 

 

–

 

 

(0.27

)

Distributions in Excess of Net Realized Gains

 

–

 

 

–

 

 

–

 

 

–

 

 

(0.01

)

Total Dividends and Distributions

 

(0.84

)

 

–

 

 

–

 

 

–

 

 

(0.28

)

Net Asset Value, End of Period

$

24.29

 

$

23.20

 

$

20.47

 

$

14.53

 

$

16.81

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return1

 

8.33%

 

 

13.34%

 

 

40.88%

 

 

(13.56)%

 

 

(8.06)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios/Supplemental Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets, End of Period (000 omitted)

$

446,794

 

$

314,526

 

$

204,015

 

$

111,685

 

$

101,057

 

Ratio of Expenses to Average Net Assets

 

1.15%

 

 

1.20%

 

 

1.30%

 

 

1.31%

 

 

1.23%

 

Ratio of Net Investment Income (Loss) to Average 

Net Assets

 

0.18%

 

 

0.39%

 

 

(0.47)%

 

 

(0.49)%

 

 

(0.50)%

 

Portfolio Turnover Rate2

 

35.77%

 

 

22.22%

 

 

42.34%

 

 

42.74%

 

 

40.96%

 

 

1    Assumes hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. 

 

2    The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation.

 

3

Per share calculations were based on average shares outstanding for the period.

 

 

***See Notes to Financial Statements***

 

81

 

 

 

**DAVIS SERIES, INC.**

FINANCIAL HIGHLIGHTS 

**DAVIS OPPORTUNITY FUND**

 

The following financial information represents selected data for each share of capital stock outstanding throughout each period:

 

**Class B**

**Year ended December 31,**

 

 

**2005**

 

**2004**

 

**2003**

 

**2002**

 

**2001**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, Beginning of Period

$

20.55

 

$

18.28

 

$

13.07

 

$

15.24

 

$

17.05

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) From Investment Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Loss

 

(0.13

)3

 

(0.08

)

 

(0.19

)

 

(0.17

)

 

(0.18

)

Net Realized and Unrealized Gains (Losses)

 

1.66

 

 

2.35

 

 

5.40

 

 

(2.00

)

 

(1.35

)

Total From Investment Operations

 

1.53

 

 

2.27

 

 

5.21

 

 

(2.17

)

 

(1.53

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends and Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from Net Investment Income

 

(0.04

)

 

–

 

 

–

 

 

–

 

 

–

 

Distributions from Realized Gains

 

(0.60

)

 

–

 

 

–

 

 

–

 

 

(0.27

)

Distributions in Excess of Net Realized Gains

 

–

 

 

–

 

 

–

 

 

–

 

 

(0.01

)

Total Dividends and Distributions

 

(0.64

)

 

–

 

 

–

 

 

–

 

 

(0.28

)

Net Asset Value, End of Period

$

21.44

 

$

20.55

 

$

18.28

 

$

13.07

 

$

15.24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return1

 

7.49%

 

 

12.42%

 

 

39.86%

 

 

(14.24)%

 

 

(8.92)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios/Supplemental Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets, End of Period (000 omitted)

$

96,501

 

$

105,077

 

$

96,854

 

$

68,895

 

$

69,903

 

Ratio of Expenses to Average Net Assets

 

1.90%

4,5

 

1.97%

 

 

2.06%

 

 

2.09%

 

 

2.06%

 

Ratio of Net Investment Loss to Average 

Net Assets

 

(0.57)%

 

 

(0.38)%

 

 

(1.23)%

 

 

(1.27)%

 

 

(1.33)%

 

Portfolio Turnover Rate2

 

35.77%

 

 

22.22%

 

 

42.34%

 

 

42.74%

 

 

40.96%

 

 

1    Assumes hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. 

 

2    The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation.

 

3

Per share calculations were based on average shares outstanding for the period.

 

4

Ratio of expenses to average net assets before the reduction of expenses paid indirectly was 1.91% for 2005.

 

5

Had the Adviser not reimbursed certain expenses, the ratio of expenses to average net assets for 2005 would have been 1.92%.

 

 

 

***See Notes to Financial Statements***

 

 

82

 

 

 

**DAVIS SERIES, INC.**

FINANCIAL HIGHLIGHTS 

**DAVIS OPPORTUNITY FUND**

 

The following financial information represents selected data for each share of capital stock outstanding throughout each period:

 

**Class C**

**Year ended December 31,**

 

 

**2005**

 

**2004**

 

**2003**

 

**2002**

 

**2001**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, Beginning of Period

$

21.42

 

$

19.05

 

$

13.62

 

$

15.89

 

$

17.76

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) From Investment Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Loss

 

(0.13

)3

 

(0.06

)

 

(0.17

)

 

(0.16

)

 

(0.13

)

Net Realized and Unrealized Gains (Losses)

 

1.73

 

 

2.43

 

 

5.60

 

 

(2.11

)

 

(1.46

)

Total From Investment Operations

 

1.60

 

 

2.37

 

 

5.43

 

 

(2.27

)

 

(1.59

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends and Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from Net Investment Income

 

(0.05

)

 

–

 

 

–

 

 

–

 

 

–

 

Distributions from Realized Gains

 

(0.60

)

 

–

 

 

–

 

 

–

 

 

(0.27

)

Distributions in Excess of Net Realized Gains

 

–

 

 

–

 

 

–

 

 

–

 

 

(0.01

)

Total Dividends and Distributions

 

(0.65

)

 

–

 

 

–

 

 

–

 

 

(0.28

)

Net Asset Value, End of Period

$

22.37

 

$

21.42

 

$

19.05

 

$

13.62

 

$

15.89

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return1

 

7.48%

 

 

12.44%

 

 

39.87%

 

 

(14.29)%

 

 

(8.90)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios/Supplemental Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets, End of Period (000 omitted)

$

150,844

 

$

93,149

 

$

59,174

 

$

38,793

 

$

30,879

 

Ratio of Expenses to Average Net Assets

 

1.90%

4

 

1.97%

 

 

2.05%

 

 

2.06%

 

 

2.08%

 

Ratio of Net Investment Loss to Average 

Net Assets

 

(0.57)%

 

 

(0.38)%

 

 

(1.22)%

 

 

(1.24)%

 

 

(1.35)%

 

Portfolio Turnover Rate2

 

35.77%

 

 

22.22%

 

 

42.34%

 

 

42.74%

 

 

40.96%

 

 

1    Assumes hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. 

 

2    The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation.

 

3

Per share calculations were based on average shares outstanding for the period.

 

4

Had the Adviser not reimbursed certain expenses, the ratio of expenses to average net assets for 2005 would have been 1.91%.

 

 

***See Notes to Financial Statements***

 

 

83

 

 

 

**DAVIS SERIES, INC.**

FINANCIAL HIGHLIGHTS 

**DAVIS OPPORTUNITY FUND**

 

The following financial information represents selected data for each share of capital stock outstanding throughout each period:

 

**Class Y**

**Year ended December 31,**

 

 

**2005**

 

**2004**

 

**2003**

 

**2002**

 

**2001**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, Beginning of Period

$

23.81

 

$

20.93

 

$

14.80

 

$

17.07

 

$

18.83

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) From Investment Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Income (Loss)

 

0.13

3

 

0.17

 

 

(0.02

)

 

(0.02

)

 

(0.03

)

Net Realized and Unrealized Gains (Losses)

 

1.93

 

 

2.71

 

 

6.15

 

 

(2.25

)

 

(1.45

)

Total From Investment Operations

 

2.06

 

 

2.88

 

 

6.13

 

 

(2.27

)

 

(1.48

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends and Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from Net Investment Income

 

(0.32

)

 

–

 

 

–

 

 

–

 

 

–

 

Distributions from Realized Gains

 

(0.60

)

 

–

 

 

–

 

 

–

 

 

(0.27

)

Distributions in Excess of Net Realized Gains

 

–

 

 

–

 

 

–

 

 

–

 

 

(0.01

)

Total Dividends and Distributions

 

(0.92

)

 

–

 

 

–

 

 

–

 

 

(0.28

)

Net Asset Value, End of Period

$

24.95

 

$

23.81

 

$

20.93

 

$

14.80

 

$

17.07

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return1

 

8.70%

 

 

13.76%

 

 

41.42%

 

 

(13.30)%

 

 

(7.81)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios/Supplemental Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets, End of Period (000 omitted)

$

50,142

 

$

17,287

 

$

6,577

 

$

4,353

 

$

4,309

 

Ratio of Expenses to Average Net Assets

 

0.85%

 

 

0.86%

 

 

0.93%

 

 

0.93%

 

 

0.91%

 

Ratio of Net Investment Income (Loss) to Average 

Net Assets

 

0.48%

 

 

0.73%

 

 

(0.10)%

 

 

(0.11)%

 

 

(0.18)%

 

Portfolio Turnover Rate2

 

35.77%

 

 

22.22%

 

 

42.34%

 

 

42.74%

 

 

40.96%

 

 

1    Assumes hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. 

 

2    The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation.

 

3

Per share calculations were based on average shares outstanding for the period.

 

 

 

***See Notes to Financial Statements***

 

84

 

 

 

**DAVIS SERIES, INC.**

FINANCIAL HIGHLIGHTS 

**DAVIS GOVERNMENT BOND FUND**

 

The following financial information represents selected data for each share of capital stock outstanding throughout each period:

 

**Class A**

**Year ended December 31,**

 

 

**2005**

 

**2004**

 

**2003**

 

**2002**

 

**2001**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, Beginning of Period

$

5.60

 

$

5.73

 

$

5.92

 

$

5.68

 

$

5.60

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) From Investment Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Income

 

0.15

 

 

0.14

 

 

0.09

 

 

0.21

 

 

0.26

 

Net Realized and Unrealized Gains (Losses)

 

(0.10

)

 

(0.13

)

 

(0.08

)

 

0.27

 

 

0.08

 

Total From Investment Operations

 

0.05

 

 

0.01

 

 

0.01

 

 

0.48

 

 

0.34

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends and Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from Net Investment Income

 

(0.15

)

 

(0.14

)

 

(0.17

)

 

(0.23

)

 

(0.26

)

Return of Capital

 

–

 

 

–

3

 

(0.03

)

 

–

 

 

–

 

Distributions in Excess of Net Investment Income

 

–

 

 

–

 

 

–

 

 

(0.01

)

 

–

 

Total Dividends and Distributions

 

(0.15

)

 

(0.14

)

 

(0.20

)

 

(0.24

)

 

(0.26

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, End of Period

$

5.50

 

$

5.60

 

$

5.73

 

$

5.92

 

$

5.68

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return1

 

0.98%

 

 

0.17%

 

 

0.10%

 

 

8.66%

 

 

6.27%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios/Supplemental Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets, End of Period (000 omitted)

$

19,340

 

$

19,025

 

$

25,168

 

$

29,892

 

$

18,198

 

Ratio of Expenses to Average Net Assets

 

1.08%

4

 

1.25%

 

 

1.13%

 

 

1.08%

 

 

1.22%

 

Ratio of Net Investment Income to Average 

Net Assets

 

2.52%

 

 

1.84%

 

 

1.96%

 

 

3.40%

 

 

4.59%

 

Portfolio Turnover Rate2

 

55.46%

 

 

165.17%

 

 

121.61%

 

 

69.89%

 

 

149.03%

 

 

1    Assumes hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. 

 

2    The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation.

 

3

Less than $0.005 per share.

 

4

Had the Adviser not reimbursed certain expenses, the ratio of expenses to average net assets for 2005 would have been 1.10%.

 

 

***See Notes to Financial Statements***

 

85

 

 

 

**DAVIS SERIES, INC.**

FINANCIAL HIGHLIGHTS 

**DAVIS GOVERNMENT BOND FUND**

 

The following financial information represents selected data for each share of capital stock outstanding throughout each period:

 

**Class B**

**Year ended December 31,**

 

 

**2005**

 

**2004**

 

**2003**

 

**2002**

 

**2001**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, Beginning of Period

$

5.59

 

$

5.71

 

$

5.91

 

$

5.66

 

$

5.58

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) From Investment Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Income

 

0.12

 

 

0.10

 

 

0.03

 

 

0.17

 

 

0.23

 

Net Realized and Unrealized Gains (Losses)

 

(0.10

)

 

(0.12

)

 

(0.08

)

 

0.28

 

 

0.07

 

Total From Investment Operations

 

0.02

 

 

(0.02

)

 

(0.05

)

 

0.45

 

 

0.30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends and Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from Net Investment Income

 

(0.12

)

 

(0.10

)

 

(0.12

)

 

(0.19

)

 

(0.22

)

Return of Capital

 

–

 

 

–

3

 

(0.03

)

 

–

 

 

–

 

Distributions in Excess of Net Investment Income

 

–

 

 

–

 

 

–

 

 

(0.01

)

 

–

 

Total Dividends and Distributions

 

(0.12

)

 

(0.10

)

 

(0.15

)

 

(0.20

)

 

(0.22

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, End of Period

$

5.49

 

$

5.59

 

$

5.71

 

$

5.91

 

$

5.66

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return1

 

0.33%

 

 

(0.33)%

 

 

(0.80)%

 

 

8.05%

 

 

5.48%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios/Supplemental Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets, End of Period (000 omitted)

$

25,208

 

$

34,921

 

$

62,549

 

$

99,461

 

$

37,541

 

Ratio of Expenses to Average Net Assets

 

1.77%

4

 

1.89%

 

 

1.82%

 

 

1.82%

 

 

1.94%

 

Ratio of Net Investment Income to Average 

Net Assets

 

1.83%

 

 

1.20%

 

 

1.27%

 

 

2.66%

 

 

3.87%

 

Portfolio Turnover Rate2

 

55.46%

 

 

165.17%

 

 

121.61%

 

 

69.89%

 

 

149.03%

 

 

1    Assumes hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. 

 

2    The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation.

 

3

Less than $0.005 per share.

 

4

Had the Adviser not reimbursed certain expenses, the ratio of expenses to average net assets for 2005 would have been 1.79%.

 

 

***See Notes to Financial Statements***

 

 

86

 

 

 

**DAVIS SERIES, INC.**

FINANCIAL HIGHLIGHTS 

**DAVIS GOVERNMENT BOND FUND**

 

The following financial information represents selected data for each share of capital stock outstanding throughout each period:

 

**Class C**

**Year ended December 31,**

 

 

**2005**

 

**2004**

 

**2003**

 

**2002**

 

**2001**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, Beginning of Period

$

5.61

 

$

5.73

 

$

5.93

 

$

5.68

 

$

5.60

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) From Investment Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Income

 

0.12

 

 

0.10

 

 

0.01

 

 

0.17

 

 

0.23

 

Net Realized and Unrealized Gains (Losses)

 

(0.10

)

 

(0.12

)

 

(0.06

)

 

0.28

 

 

0.07

 

Total From Investment Operations

 

0.02

 

 

(0.02

)

 

(0.05

)

 

0.45

 

 

0.30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends and Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from Net Investment Income

 

(0.12

)

 

(0.10

)

 

(0.12

)

 

(0.19

)

 

(0.22

)

Return of Capital

 

–

 

 

–

3

 

(0.03

)

 

–

 

 

–

 

Distributions in Excess of Net Investment Income

 

–

 

 

–

 

 

–

 

 

(0.01

)

 

–

 

Total Dividends and Distributions

 

(0.12

)

 

(0.10

)

 

(0.15

)

 

(0.20

)

 

(0.22

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, End of Period

$

5.51

 

$

5.61

 

$

5.73

 

$

5.93

 

$

5.68

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return1

 

0.29%

 

 

(0.34)%

 

 

(0.80)%

 

 

8.03%

 

 

5.44%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios/Supplemental Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets, End of Period (000 omitted)

$

5,358

 

$

6,688

 

$

12,955

 

$

25,107

 

$

12,335

 

Ratio of Expenses to Average Net Assets

 

1.82%

4

 

1.93%

 

 

1.85%

 

 

1.83%

 

 

1.96%

 

Ratio of Net Investment Income to Average 

Net Assets

 

1.78%

 

 

1.16%

 

 

1.24%

 

 

2.65%

 

 

3.85%

 

Portfolio Turnover Rate2

 

55.46%

 

 

165.17%

 

 

121.61%

 

 

69.89%

 

 

149.03%

 

 

1    Assumes hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. 

 

2    The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation.

 

3

Less than $0.005 per share.

 

4

Had the Adviser not reimbursed certain expenses, the ratio of expenses to average net assets for 2005 would have been 1.84%.

 

 

***See Notes to Financial Statements***

 

 

87

 

 

 

**DAVIS SERIES, INC.**

FINANCIAL HIGHLIGHTS 

**DAVIS GOVERNMENT BOND FUND**

 

The following financial information represents selected data for each share of capital stock outstanding throughout each period:

 

**Class Y**

**Year ended December 31,**

 

 

**2005**

 

**2004**

 

**2003**

 

**2002**

 

**2001**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, Beginning of Period

$

5.65

 

$

5.77

 

$

5.97

 

$

5.72

 

$

5.64

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) From Investment Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Income

 

0.17

 

 

0.15

 

 

0.11

 

 

0.22

 

 

0.29

 

Net Realized and Unrealized Gains (Losses)

 

(0.10

)

 

(0.12

)

 

(0.10

)

 

0.28

 

 

0.07

 

Total From Investment Operations

 

0.07

 

 

0.03

 

 

0.01

 

 

0.50

 

 

0.36

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends and Distributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from Net Investment Income

 

(0.17

)

 

(0.15

)

 

(0.18

)

 

(0.25

)

 

(0.28

)

Return of Capital

 

–

 

 

–

3

 

(0.03

)

 

–

 

 

–

 

Distributions in Excess of Net Investment Income

 

–

 

 

–

 

 

–

 

 

–

3

 

–

 

Total Dividends and Distributions

 

(0.17

)

 

(0.15

)

 

(0.21

)

 

(0.25

)

 

(0.28

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, End of Period

$

5.55

 

$

5.65

 

$

5.77

 

$

5.97

 

$

5.72

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return1

 

1.22%

 

 

0.61%

 

 

0.17%

 

 

9.05%

 

 

6.54%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios/Supplemental Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets, End of Period (000 omitted)

$

115

 

$

219

 

$

263

 

$

296

 

$

438

 

Ratio of Expenses to Average Net Assets

 

0.97%

4

 

1.02%

 

 

0.92%

 

 

0.88%

 

 

0.96%

 

Ratio of Net Investment Income to Average 

Net Assets

 

2.63%

 

 

2.07%

 

 

2.17%

 

 

3.60%

 

 

4.85%

 

Portfolio Turnover Rate2

 

55.46%

 

 

165.17%

 

 

121.61%

 

 

69.89%

 

 

149.03%

 

 

1    Assumes hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. 

 

2    The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation.

 

3

Less than $0.005 per share.

 

4

Had the Adviser not reimbursed certain expenses, the ratio of expenses to average net assets for 2005 would have been 0.98%.

 

 

***See Notes to Financial Statements***

 

88

 

 

 

**DAVIS SERIES, INC.**

FINANCIAL HIGHLIGHTS 

**DAVIS GOVERNMENT MONEY MARKET FUND**

 

The following financial information represents selected data for each share of capital stock outstanding throughout each period:

 

**Class A, B, C, & Y**

**Year ended December 31,**

 

 

**2005**

 

**2004**

 

**2003**

 

**2002**

 

**2001**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, Beginning of Period

$

1.000

 

$

1.000

 

$

1.000

 

$

1.000

 

$

1.000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income From Investment Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Income

 

0.026

 

 

0.008

 

 

0.006

 

 

0.014

 

 

0.037

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from Net Investment Income

 

(0.026

)

 

(0.008

)

 

(0.006

)

 

(0.014

)

 

(0.037

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, End of Period

$

1.000

 

$

1.000

 

$

1.000

 

$

1.000

 

$

1.000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return1

 

2.68%

 

 

0.83%

 

 

0.62%

 

 

1.38%

 

 

3.77%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios/Supplemental Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets, End of Period (000 omitted)

$

513,221

 

$

572,381

 

$

571,431

 

$

600,912

 

$

505,713

 

Ratio of Expenses to Average Net Assets

 

0.56%

2

 

0.58%

 

 

0.60%

 

 

0.59%

 

 

0.59%

 

Ratio of Net Investment Income (Loss) to Average 

Net Assets

 

2.65%

 

 

0.83%

 

 

0.62%

 

 

1.35%

 

 

3.75%

 

 

1    Assumes hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. 

 

2

Had the Adviser not reimbursed certain expenses, the ratio of expenses to average net assets for 2005 would have been 0.57%.

 

 

 

 

 

 

 

***See Notes to Financial Statements***

 

89

 

 

 

**DAVIS SERIES, INC.**

FINANCIAL HIGHLIGHTS 

**DAVIS FINANCIAL FUND**

 

The following financial information represents selected data for each share of capital stock outstanding throughout each period:

 

**Class A**

**Year ended December 31,**

 

 

**2005**

 

**2004**

 

**2003**

 

**2002**

 

**2001**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, Beginning of Period

$

41.00

 

$

36.57

 

$

26.72

 

$

32.98

 

$

36.30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) From Investment Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Income (Loss)

 

0.04

 

 

0.02

 

 

0.08

 

 

0.06

 

 

(0.06

)

Net Realized and Unrealized Gains (Losses)

 

3.27

 

 

4.41

 

 

9.77

 

 

(6.32

)

 

(3.26

)

Total From Investment Operations

 

3.31

 

 

4.43

 

 

9.85

 

 

(6.26

)

 

(3.32

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends and Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions from Realized Gains

 

(1.91

)

 

–

 

 

–

 

 

–

 

 

–

 

Total Dividends and Distributions

 

(1.91

)

 

–

 

 

–

 

 

–

 

 

–

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, End of Period

$

42.40

 

$

41.00

 

$

36.57

 

$

26.72

 

$

32.98

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return1

 

8.03%

 

 

12.11%

 

 

36.86%

 

 

(18.98)%

 

 

(9.15)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios/Supplemental Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets, End of Period (000 omitted)

$

613,683

 

$

583,387

 

$

535,300

 

$

415,641

 

$

600,540

 

Ratio of Expenses to Average Net Assets

 

0.98%

3

 

1.01%

 

 

1.10%

 

 

1.11%

 

 

1.08%

 

Ratio of Net Investment Income (Loss) to Average 

Net Assets

 

0.10%

 

 

0.05%

 

 

0.27%

 

 

0.18%

 

 

(0.20)%

 

Portfolio Turnover Rate2

 

5.17%

 

 

–

 

 

9.29%

 

 

14.88%

 

 

17.80%

 

 

1    Assumes hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. 

 

2    The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation.

 

3

Had the Adviser not reimbursed certain expenses, the ratio of expenses to average net assets for 2005 would have been 0.99%.

 

 

 

***See Notes to Financial Statements***

 

90

 

 

 

**DAVIS SERIES, INC.**

FINANCIAL HIGHLIGHTS 

**DAVIS FINANCIAL FUND**

 

The following financial information represents selected data for each share of capital stock outstanding throughout each period:

 

**Class B**

**Year ended December 31,**

 

 

**2005**

 

**2004**

 

**2003**

 

**2002**

 

**2001**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, Beginning of Period

$

38.03

 

$

34.22

 

$

25.21

 

$

31.39

 

$

34.85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) From Investment Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Loss

 

(0.29

)3

 

(0.33

)

 

(0.18

)

 

(0.21

)

 

(0.33

)

Net Realized and Unrealized Gains (Losses)

 

3.00

 

 

4.14

 

 

9.19

 

 

(5.97

)

 

(3.13

)

Total From Investment Operations

 

2.71

 

 

3.81

 

 

9.01

 

 

(6.18

)

 

(3.46

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends and Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions from Realized Gains

 

(1.91

)

 

–

 

 

–

 

 

–

 

 

–

 

Total Dividends and Distributions

 

(1.91

)

 

–

 

 

–

 

 

–

 

 

–

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, End of Period

$

38.83

 

$

38.03

 

$

34.22

 

$

25.21

 

$

31.39

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return1

 

7.08%

 

 

11.13%

 

 

35.74%

 

 

(19.69)%

 

 

(9.93)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios/Supplemental Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets, End of Period (000 omitted)

$

192,049

 

$

276,945

 

$

304,513

 

$

270,645

 

$

415,607

 

Ratio of Expenses to Average Net Assets

 

1.85%

4

 

1.88%

 

 

1.98%

 

 

1.95%

 

 

1.90%

 

Ratio of Net Investment Loss to Average 

Net Assets

 

(0.77)%

 

 

(0.82)%

 

 

(0.61)%

 

 

(0.66)%

 

 

(1.02)%

 

Portfolio Turnover Rate2

 

5.17%

 

 

–

 

 

9.29%

 

 

14.88%

 

 

17.80%

 

 

1    Assumes hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. 

 

2    The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation.

 

3

Per share calculations were based on average shares outstanding for the period.

 

4

Had the Adviser not reimbursed certain expenses, the ratio of expenses to average net assets for 2005 would have been 1.88%.

 

 

***See Notes to Financial Statements***

 

 

91

 

 

 

**DAVIS SERIES, INC.**

FINANCIAL HIGHLIGHTS 

**DAVIS FINANCIAL FUND**

 

The following financial information represents selected data for each share of capital stock outstanding throughout each period:

 

**Class C**

**Year ended December 31,**

 

 

**2005**

 

**2004**

 

**2003**

 

**2002**

 

**2001**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, Beginning of Period

$

38.62

 

$

34.75

 

$

25.61

 

$

31.88

 

$

35.40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) From Investment Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Loss

 

(0.30

)3

 

(0.32

)

 

(0.18

)

 

(0.21

)

 

(0.32

)

Net Realized and Unrealized Gains (Losses)

 

3.05

 

 

4.19

 

 

9.32

 

 

(6.06

)

 

(3.20

)

Total From Investment Operations

 

2.75

 

 

3.87

 

 

9.14

 

 

(6.27

)

 

(3.52

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends and Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions from Realized Gains

 

(1.91

)

 

–

 

 

–

 

 

–

 

 

–

 

Total Dividends and Distributions

 

(1.91

)

 

–

 

 

–

 

 

–

 

 

–

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, End of Period

$

39.46

 

$

38.62

 

$

34.75

 

$

25.61

 

$

31.88

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return1

 

7.07%

 

 

11.14%

 

 

35.69%

 

 

(19.67)%

 

 

(9.94)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios/Supplemental Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets, End of Period (000 omitted)

$

94,512

 

$

104,508

 

$

108,557

 

$

94,557

 

$

145,817

 

Ratio of Expenses to Average Net Assets

 

1.85%

4

 

1.89%

 

 

1.99%

 

 

1.96%

 

 

1.90%

 

Ratio of Net Investment Loss to Average 

Net Assets

 

(0.77)%

 

 

(0.83)%

 

 

(0.62)%

 

 

(0.67)%

 

 

(1.02)%

 

Portfolio Turnover Rate2

 

5.17%

 

 

–

 

 

9.29%

 

 

14.88%

 

 

17.80%

 

 

1    Assumes hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. 

 

2    The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation.

 

3

Per share calculations were based on average shares outstanding for the period.

 

4

Had the Adviser not reimbursed certain expenses, the ratio of expenses to average net assets for 2005 would have been 1.87%.

 

 

 

***See Notes to Financial Statements***

 

 

92

 

 

 

**DAVIS SERIES, INC.**

FINANCIAL HIGHLIGHTS 

**DAVIS FINANCIAL FUND**

 

The following financial information represents selected data for each share of capital stock outstanding throughout each period:

 

**Class Y**

**Year ended December 31,**

 

 

**2005**

 

**2004**

 

**2003**

 

**2002**

 

**2001**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, Beginning of Period

$

41.59

 

$

37.03

 

$

27.00

 

$

33.27

 

$

36.56

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) From Investment Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Income

 

0.09

 

 

0.09

 

 

0.17

 

 

0.14

 

 

–

3

Net Realized and Unrealized Gains (Losses)

 

3.33

 

 

4.47

 

 

9.86

 

 

(6.41

)

 

(3.29

)

Total From Investment Operations

 

3.42

 

 

4.56

 

 

10.03

 

 

(6.27

)

 

(3.29

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends and Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions from Realized Gains

 

(1.91

)

 

–

 

 

–

 

 

–

 

 

–

 

Total Dividends and Distributions

 

(1.91

)

 

–

 

 

–

 

 

–

 

 

–

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, End of Period

$

43.10

 

$

41.59

 

$

37.03

 

$

27.00

 

$

33.27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return1

 

8.18%

 

 

12.31%

 

 

37.15%

 

 

(18.85)%

 

 

(9.00)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios/Supplemental Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets, End of Period (000 omitted)

$

11,815

 

$

9,980

 

$

11,563

 

$

12,727

 

$

23,266

 

Ratio of Expenses to Average Net Assets

 

0.84%

4

 

0.85%

 

 

0.91%

 

 

0.88%

 

 

0.87%

 

Ratio of Net Investment Income to Average 

Net Assets

 

0.24%

 

 

0.21%

 

 

0.46%

 

 

0.41%

 

 

0.01%

 

Portfolio Turnover Rate2

 

5.17%

 

 

–

 

 

9.29%

 

 

14.88%

 

 

17.80%

 

 

1    Assumes hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. 

 

2    The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation.

 

3

Less than $0.005 per share.

 

4

Had the Adviser not reimbursed certain expenses, the ratio of expenses to average net assets for 2005 would have been 0.85%.

 

 

***See Notes to Financial Statements***

 

93

 

 

 

**DAVIS SERIES, INC.**

FINANCIAL HIGHLIGHTS 

**DAVIS APPRECIATION & INCOME FUND**

 

The following financial information represents selected data for each share of capital stock outstanding throughout each period:

 

**Class A**

**Year ended December 31,**

 

 

**2005**

 

**2004**

 

**2003**

 

**2002**

 

**2001**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, Beginning of Period

$

27.50

 

$

24.95

 

$

20.30

 

$

21.36

 

$

23.96

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) From Investment Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Income

 

0.59

 

 

0.65

 

 

0.74

 

 

0.80

 

 

0.76

 

Net Realized and Unrealized Gains (Losses)

 

1.11

 

 

2.57

 

 

4.65

 

 

(1.06

)

 

(2.57

)

Total From Investment Operations

 

1.70

 

 

3.22

 

 

5.39

 

 

(0.26

)

 

(1.81

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends and Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from Net Investment Income

 

(0.62

)

 

(0.67

)

 

(0.74

)

 

(0.80

)

 

(0.76

)

Distributions from Realized Gains

 

(0.64

)

 

–

 

 

–

 

 

–

 

 

–

 

Return of Capital

 

–

 

 

–

 

 

–

 

 

–

 

 

(0.03

)

Total Dividends and Distributions

 

(1.26

)

 

(0.67

)

 

(0.74

)

 

(0.80

)

 

(0.79

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, End of Period

$

27.94

 

$

27.50

 

$

24.95

 

$

20.30

 

$

21.36

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return1

 

6.29%

 

 

13.08%

 

 

26.94%

 

 

(1.21)%

 

 

(7.56)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios/Supplemental Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets, End of Period (000 omitted)

$

224,600

 

$

149,687

 

$

114,003

 

$

80,751

 

$

89,077

 

Ratio of Expenses to Average Net Assets

 

1.07%

 

 

1.08%

 

 

1.10%

 

 

1.09%

 

 

1.09%

 

Ratio of Net Investment Income to Average 

Net Assets

 

2.12%

 

 

2.52%

 

 

3.38%

 

 

3.69%

 

 

3.31%

 

Portfolio Turnover Rate2

 

16.64%

 

 

21.26%

 

 

33.35%

 

 

34.26%

 

 

20.38%

 

 

1    Assumes hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. 

 

2    The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation.

 

 

 

***See Notes to Financial Statements***

 

94

 

 

 

**DAVIS SERIES, INC.**

FINANCIAL HIGHLIGHTS 

**DAVIS APPRECIATION & INCOME FUND**

 

The following financial information represents selected data for each share of capital stock outstanding throughout each period:

 

**Class B**

**Year ended December 31,**

 

 

**2005**

 

**2004**

 

**2003**

 

**2002**

 

**2001**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, Beginning of Period

$

27.25

 

$

24.72

 

$

20.13

 

$

21.16

 

$

23.74

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) From Investment Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Income

 

0.35

 

 

0.41

 

 

0.52

 

 

0.60

 

 

0.54

 

Net Realized and Unrealized Gains (Losses)

 

1.08

 

 

2.54

 

 

4.59

 

 

(1.03

)

 

(2.55

)

Total From Investment Operations

 

1.43

 

 

2.95

 

 

5.11

 

 

(0.43

)

 

(2.01

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends and Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from Net Investment Income

 

(0.37

)

 

(0.42

)

 

(0.52

)

 

(0.60

)

 

(0.54

)

Distributions from Realized Gains

 

(0.64

)

 

–

 

 

–

 

 

–

 

 

–

 

Return of Capital

 

–

 

 

–

 

 

–

 

 

–

 

 

(0.03

)

Total Dividends and Distributions

 

(1.01

)

 

(0.42

)

 

(0.52

)

 

(0.60

)

 

(0.57

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, End of Period

$

27.67

 

$

27.25

 

$

24.72

 

$

20.13

 

$

21.16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return1

 

5.30%

 

 

12.06%

 

 

25.71%

 

 

(2.01)%

 

 

(8.47)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios/Supplemental Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets, End of Period (000 omitted)

$

75,289

 

$

80,729

 

$

72,181

 

$

53,326

 

$

57,692

 

Ratio of Expenses to Average Net Assets

 

1.93%

4

 

1.99%

 

 

2.03%

 

 

2.03%

 

 

2.00%

3

Ratio of Net Investment Income to Average 

Net Assets

 

1.26%

 

 

1.61%

 

 

2.45%

 

 

2.75%

 

 

2.40%

 

Portfolio Turnover Rate2

 

16.64%

 

 

21.26%

 

 

33.35%

 

 

34.26%

 

 

20.38%

 

 

1    Assumes hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. 

 

2    The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation.

 

3

Ratio of expenses to average net assets before the reduction of expenses paid indirectly was 2.01% for 2001.

 

4

Had the Adviser not reimbursed certain expenses, the ratio of expenses to average net assets for 2005 would have been 1.94%.

 

***See Notes to Financial Statements***

 

 

95

 

 

 

**DAVIS SERIES, INC.**

FINANCIAL HIGHLIGHTS 

**DAVIS APPRECIATION & INCOME FUND**

 

The following financial information represents selected data for each share of capital stock outstanding throughout each period:

 

**Class C**

**Year ended December 31,**

 

 

**2005**

 

**2004**

 

**2003**

 

**2002**

 

**2001**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, Beginning of Period

$

27.62

 

$

25.06

 

$

20.40

 

$

21.45

 

$

24.06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) From Investment Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Income

 

0.36

 

 

0.42

 

 

0.53

 

 

0.61

 

 

0.55

 

Net Realized and Unrealized Gains (Losses)

 

1.10

 

 

2.57

 

 

4.66

 

 

(1.05

)

 

(2.58

)

Total From Investment Operations

 

1.46

 

 

2.99

 

 

5.19

 

 

(0.44

)

 

(2.03

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends and Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from Net Investment Income

 

(0.38

)

 

(0.43

)

 

(0.53

)

 

(0.61

)

 

(0.55

)

Distributions from Realized Gains

 

(0.64

)

 

–

 

 

–

 

 

–

 

 

–

 

Return of Capital

 

–

 

 

–

 

 

–

 

 

–

 

 

(0.03

)

Total Dividends and Distributions

 

(1.02

)

 

(0.43

)

 

(0.53

)

 

(0.61

)

 

(0.58

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, End of Period

$

28.06

 

$

27.62

 

$

25.06

 

$

20.40

 

$

21.45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return1

 

5.34%

 

 

12.05%

 

 

25.75%

 

 

(2.04)%

 

 

(8.44)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios/Supplemental Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets, End of Period (000 omitted)

$

55,395

 

$

34,627

 

$

24,531

 

$

14,428

 

$

12,717

 

Ratio of Expenses to Average Net Assets

 

1.93%

 

 

1.98%

 

 

2.02%

 

 

2.04%

3

 

2.02%

 

Ratio of Net Investment Income to Average 

Net Assets

 

1.26%

 

 

1.62%

 

 

2.46%

 

 

2.74%

 

 

2.38%

 

Portfolio Turnover Rate2

 

16.64%

 

 

21.26%

 

 

33.35%

 

 

34.26%

 

 

20.38%

 

 

1    Assumes hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. 

 

2    The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation.

 

3

Ratio of expenses to average net assets before the reduction of expenses paid indirectly was 2.05% for 2002.

 

***See Notes to Financial Statements***

 

 

96

 

 

 

**DAVIS SERIES, INC.**

FINANCIAL HIGHLIGHTS 

**DAVIS APPRECIATION & INCOME FUND**

 

The following financial information represents selected data for each share of capital stock outstanding throughout each period:

 

**Class Y**

**Year ended December 31,**

 

 

**2005**

 

**2004**

 

**2003**

 

**2002**

 

**2001**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, Beginning of Period

$

27.61

 

$

25.04

 

$

20.38

 

$

21.43

 

$

24.05

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) From Investment Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Income

 

0.66

 

 

0.71

 

 

0.78

 

 

0.84

 

 

0.82

 

Net Realized and Unrealized Gains (Losses)

 

1.11

 

 

2.58

 

 

4.66

 

 

(1.05

)

 

(2.61

)

Total From Investment Operations

 

1.77

 

 

3.29

 

 

5.44

 

 

(0.21

)

 

(1.79

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends and Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from Net Investment Income

 

(0.69

)

 

(0.72

)

 

(0.78

)

 

(0.84

)

 

(0.82

)

Distributions from Realized Gains

 

(0.64

)

 

–

 

 

–

 

 

–

 

 

–

 

Return of Capital

 

–

 

 

–

 

 

–

 

 

–

 

 

(0.01

)

Total Dividends and Distributions

 

(1.33

)

 

(0.72

)

 

(0.78

)

 

(0.84

)

 

(0.83

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, End of Period

$

28.05

 

$

27.61

 

$

25.04

 

$

20.38

 

$

21.43

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return1

 

6.52%

 

 

13.35%

 

 

27.13%

 

 

(0.96)%

 

 

(7.43)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios/Supplemental Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets, End of Period (000 omitted)

$

37,110

 

$

30,260

 

$

25,892

 

$

19,445

 

$

20,865

 

Ratio of Expenses to Average Net Assets

 

0.83%

 

 

0.86%

 

 

0.88%

 

 

0.88%

 

 

0.88%

 

Ratio of Net Investment Income to Average 

Net Assets

 

2.36%

 

 

2.74%

 

 

3.60%

 

 

3.90%

 

 

3.52%

 

Portfolio Turnover Rate2

 

16.64%

 

 

21.26%

 

 

33.35%

 

 

34.26%

 

 

20.38%

 

 

1    Assumes hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. 

 

2    The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation.

 

 

 

***See Notes to Financial Statements***

 

97

 

 

 

**DAVIS SERIES, INC.**

FINANCIAL HIGHLIGHTS 

**DAVIS REAL ESTATE FUND**

 

The following financial information represents selected data for each share of capital stock outstanding throughout each period:

 

**Class A**

**Year ended December 31,**

 

 

**2005**

 

**2004**

 

**2003**

 

**2002**

 

**2001**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, Beginning of Period

$

39.52

 

$

30.32

 

$

22.79

 

$

22.29

 

$

22.06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income From Investment Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Income

 

0.59

 

 

0.64

 

 

0.90

 

 

0.82

 

 

0.77

 

Net Realized and Unrealized Gains

 

4.37

 

 

9.32

 

 

7.53

 

 

0.50

 

 

0.45

 

Total From Investment Operations

 

4.96

 

 

9.96

 

 

8.43

 

 

1.32

 

 

1.22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends and Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from Net Investment Income

 

(0.83

)

 

(0.76

)

 

(0.90

)

 

(0.82

)

 

(0.77

)

Distributions from Realized Gains

 

(3.42

)

 

–

 

 

–

 

 

–

 

 

–

 

Distributions in Excess of Net Investment Income

 

–

 

 

–

 

 

–

 

 

–

 

 

(0.22

)

Total Dividends and Distributions

 

(4.25

)

 

(0.76

)

 

(0.90

)

 

(0.82

)

 

(0.99

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, End of Period

$

40.23

 

$

39.52

 

$

30.32

 

$

22.79

 

$

22.29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return1

 

12.76%

 

 

33.22%

 

 

37.52%

 

 

5.89%

 

 

5.66%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios/Supplemental Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets, End of Period (000 omitted)

$

372,571

 

$

313,378

 

$

190,505

 

$

143,585

 

$

167,043

 

Ratio of Expenses to Average Net Assets

 

1.09%

3

 

1.26%

 

 

1.30%

 

 

1.28%

 

 

1.19%

 

Ratio of Net Investment Income to Average 

Net Assets

 

1.48%

 

 

1.93%

 

 

3.40%

 

 

3.17%

 

 

3.41%

 

Portfolio Turnover Rate2

 

24.86%

 

 

31.37%

 

 

25.93%

 

 

52.57%

 

 

34.91%

 

 

1    Assumes hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. 

 

2    The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation.

 

3

Had the Adviser not reimbursed certain expenses, the ratio of expenses to average net assets for 2005 would have been 1.10%.

 

 

 

***See Notes to Financial Statements***

 

98

 

 

 

**DAVIS SERIES, INC.**

FINANCIAL HIGHLIGHTS 

**DAVIS REAL ESTATE FUND**

 

The following financial information represents selected data for each share of capital stock outstanding throughout each period:

 

**Class B**

**Year ended December 31,**

 

 

**2005**

 

**2004**

 

**2003**

 

**2002**

 

**2001**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, Beginning of Period

$

39.36

 

$

30.20

 

$

22.71

 

$

22.21

 

$

21.99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income From Investment Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Income

 

0.30

 

 

0.43

 

 

0.72

 

 

0.65

 

 

0.56

 

Net Realized and Unrealized Gains

 

4.34

 

 

9.26

 

 

7.49

 

 

0.50

 

 

0.45

 

Total From Investment Operations

 

4.64

 

 

9.69

 

 

8.21

 

 

1.15

 

 

1.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends and Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from Net Investment Income

 

(0.53

)

 

(0.53

)

 

(0.72

)

 

(0.65

)

 

(0.56

)

Distributions from Realized Gains

 

(3.42

)

 

–

 

 

–

 

 

–

 

 

–

 

Distributions in Excess of Net Investment Income

 

–

 

 

–

 

 

–

 

 

–

 

 

(0.23

)

Total Dividends and Distributions

 

(3.95

)

 

(0.53

)

 

(0.72

)

 

(0.65

)

 

(0.79

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, End of Period

$

40.05

 

$

39.36

 

$

30.20

 

$

22.71

 

$

22.21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return1

 

11.91%

 

 

32.34%

 

 

36.52%

 

 

5.13%

 

 

4.70%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios/Supplemental Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets, End of Period (000 omitted)

$

87,039

 

$

125,550

 

$

110,303

 

$

91,740

 

$

87,899

 

Ratio of Expenses to Average Net Assets

 

1.88%

3

 

1.94%

 

 

1.99%

 

 

2.00%

 

 

1.99%

 

Ratio of Net Investment Income to Average 

Net Assets

 

0.69%

 

 

1.25%

 

 

2.71%

 

 

2.45%

 

 

2.61%

 

Portfolio Turnover Rate2

 

24.86%

 

 

31.37%

 

 

25.93%

 

 

52.57%

 

 

34.91%

 

 

1    Assumes hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. 

 

2    The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation.

 

3

Had the Adviser not reimbursed certain expenses, the ratio of expenses to average net assets for 2005 would have been 1.89%.

 

 

***See Notes to Financial Statements***

 

 

99

 

 

 

**DAVIS SERIES, INC.**

FINANCIAL HIGHLIGHTS 

**DAVIS REAL ESTATE FUND**

 

The following financial information represents selected data for each share of capital stock outstanding throughout each period:

 

**Class C**

**Year ended December 31,**

 

 

**2005**

 

**2004**

 

**2003**

 

**2002**

 

**2001**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, Beginning of Period

$

39.63

 

$

30.41

 

$

22.87

 

$

22.37

 

$

22.14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income From Investment Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from Net Investment Income

 

0.31

 

 

0.43

 

 

0.72

 

 

0.65

 

 

0.56

 

Net Realized and Unrealized Gains

 

4.37

 

 

9.33

 

 

7.54

 

 

0.50

 

 

0.47

 

Total From Investment Operations

 

4.68

 

 

9.76

 

 

8.26

 

 

1.15

 

 

1.03

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends and Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Income

 

(0.54

)

 

(0.54

)

 

(0.72

)

 

(0.65

)

 

(0.56

)

Distributions from Realized Gains

 

(3.42

)

 

–

 

 

–

 

 

–

 

 

–

 

Distributions in Excess of Net Investment Income

 

–

 

 

–

 

 

–

 

 

–

 

 

(0.24

)

Total Dividends and Distributions

 

(3.96

)

 

(0.54

)

 

(0.72

)

 

(0.65

)

 

(0.80

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, End of Period

$

40.35

 

$

39.63

 

$

30.41

 

$

22.87

 

$

22.37

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return1

 

11.93%

 

 

32.37%

 

 

36.52%

 

 

5.11%

 

 

4.75%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios/Supplemental Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets, End of Period (000 omitted)

$

95,229

 

$

86,835

 

$

57,657

 

$

38,299

 

$

39,165

 

Ratio of Expenses to Average Net Assets

 

1.87%

4

 

1.93%

 

 

1.97%

 

 

1.97%

 

 

1.96%

3

Ratio of Net Investment Income to Average 

Net Assets

 

0.70%

 

 

1.26%

 

 

2.73%

 

 

2.48%

 

 

2.64%

 

Portfolio Turnover Rate2

 

24.86%

 

 

31.37%

 

 

25.93%

 

 

52.57%

 

 

34.91%

 

 

1    Assumes hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. 

 

2    The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation.

 

3

Ratio of expenses to average net assets before the reduction of expenses paid indirectly was 1.97% for 2001.

 

4

Had the Adviser not reimbursed certain expenses, the ratio of expenses to average net assets for 2005 would have been 1.88%.

 

 

***See Notes to Financial Statements***

 

 

100

 

 

 

**DAVIS SERIES, INC.**

FINANCIAL HIGHLIGHTS 

**DAVIS REAL ESTATE FUND**

 

The following financial information represents selected data for each share of capital stock outstanding throughout each period:

 

**Class Y**

**Year ended December 31,**

 

 

**2005**

 

**2004**

 

**2003**

 

**2002**

 

**2001**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, Beginning of Period

$

39.78

 

$

30.51

 

$

22.93

 

$

22.42

 

$

22.20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income From Investment Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Income

 

0.74

 

 

0.82

 

 

1.02

 

 

0.91

 

 

0.85

 

Net Realized and Unrealized Gains

 

4.42

 

 

9.37

 

 

7.58

 

 

0.51

 

 

0.44

 

Total From Investment Operations

 

5.16

 

 

10.19

 

 

8.60

 

 

1.42

 

 

1.29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends and Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from Net Investment Income

 

(0.99

)

 

(0.92

)

 

(1.02

)

 

(0.91

)

 

(0.85

)

Distributions from Realized Gains

 

(3.42

)

 

–

 

 

–

 

 

–

 

 

–

 

Distributions in Excess of Net Investment Income

 

–

 

 

–

 

 

–

 

 

–

 

 

(0.22

)

Total Dividends and Distributions

 

(4.41

)

 

(0.92

)

 

(1.02

)

 

(0.91

)

 

(1.07

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value, End of Period

$

40.53

 

$

39.78

 

$

30.51

 

$

22.93

 

$

22.42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return1

 

13.20%

 

 

33.85%

 

 

38.10%

 

 

6.33%

 

 

5.95%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios/Supplemental Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets, End of Period (000 omitted)

$

79,156

 

$

69,241

 

$

53,740

 

$

39,456

 

$

39,203

 

Ratio of Expenses to Average Net Assets

 

0.77%

 

 

0.80%

 

 

0.84%

 

 

0.84%

 

 

0.85%

 

Ratio of Net Investment Income to Average 

Net Assets

 

1.80%

 

 

2.39%

 

 

3.86%

 

 

3.61%

 

 

3.75%

 

Portfolio Turnover Rate2

 

24.86%

 

 

31.37%

 

 

25.93%

 

 

52.57%

 

 

34.91%

 

 

1    Assumes hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. 

 

2    The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation.

 

 

 

***See Notes to Financial Statements***

 

 

101

 

 

 

 

**DAVIS SERIES, INC.**

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

**To the Shareholders and Board of Directors**

**of Davis Series, Inc.:**

 

We have audited the accompanying statements of assets and liabilities of Davis Opportunity Fund, Davis Government Bond Fund, Davis Government Money Market Fund, Davis Financial Fund, Davis Appreciation & Income Fund, and Davis Real Estate Fund (comprising the Davis Series, Inc.), including the schedules of investments, as of December 31, 2005, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management.  Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. 

 

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Davis Opportunity Fund, Davis Government Bond Fund, Davis Government Money Market Fund, Davis Financial Fund, Davis Appreciation & Income Fund, and Davis Real Estate Fund as of December 31, 2005, the results of their operations for the year then ended, the changes in their net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.

 

 

 

Denver, Colorado

February 3, 2006

 

 

 

 

102

 

 

 

**DAVIS SERIES, INC.**

**Federal Income Tax Information**

**For the Year Ended December 31, 2005 (Unaudited)**

 

In early 2006, shareholders will receive information regarding all dividends and distributions paid to them by the Funds during calendar year 2005.  Regulations of the U.S. Treasury Department require the Fund to report this information to the Internal Revenue Service.  

 

The information and distributions reported herein may differ from the information reported as distributions taxable to certain shareholders for the calendar year 2005 with their 2005 form 1099-DIV.

 

**Davis Opportunity Fund**

During the calendar year ended 2005, the Fund declared and paid long-term capital gain distributions in the amount of $17,346,140.

 

Dividends paid by the Fund during the calendar year ended 2005, which are not designated as capital gain distributions, should be multiplied by 34% to arrive at the net amount eligible for the corporate dividend-received deduction.  

 

For the calendar year ended 2005 certain dividends paid by the Fund constitute qualified dividend income for Federal Income Tax purposes.  The Fund designates $4,061,585 as qualified dividend income. 

 

**Davis Government Bond Fund**

None of the dividends paid by the Fund during the calendar year ended 2005 are eligible for the corporate dividend-received deduction.

 

For the calendar year ended 2005, none of the dividends paid by the Fund constitute qualified dividend income for Federal Income Tax purposes.

 

**Davis Financial Fund**

During the calendar year ended 2005, the Fund declared and paid long-term capital gain distributions in the amount of $40,643,375.

 

**Davis Appreciation & Income Fund**

During the calendar year ended 2005, the Fund declared and paid long-term capital gain distributions in the amount of $8,704,128.

 

Dividends paid by the Fund during the calendar year ended 2005, which are not designated as capital gain distributions, should be multiplied by 34% to arrive at the net amount eligible for the corporate dividend-received deduction.

 

For the calendar year 2005, certain dividends paid by the Fund constitute qualified dividend income for Federal Income Tax purposes.  The Fund designates $2,355,089 as qualified income.

 

**Davis Real Estate Fund**

During the calendar year ended 2005, the Fund declared and paid long-term capital gain distributions in the amount of $47,724,732.

 

Dividends paid by the Fund during the calendar year ended 2005, which are not designated as capital gain distributions, should be multiplied by 2% to arrive at the net amount eligible for the corporate dividend-received deduction.

 

For the calendar year 2005, certain dividends paid by the Fund constitute qualified dividend income for Federal Income Tax purposes.  The Fund designates $705,194 as qualified income.

 

The foregoing information is presented to assist shareholders in reporting distributions received from the Funds to the Internal Revenue Service.  Because of the complexity of the federal regulations that may affect your individual tax return and the many variations in state and local regulations, we recommend that you consult your tax adviser for specific guidance.

 

103

 

 

 

**DAVIS SERIES, INC.**

**For the Year Ended December 31, 2005 (Unaudited)**

 

**Portfolio Proxy Voting Policies and Procedures**

 

The Funds have adopted Portfolio Proxy Voting Policies and Procedures under which the Funds vote proxies relating to securities held by the Funds.  A description of the Funds’ Portfolio Proxy Voting Policies and Procedures is available (i) without charge, upon request, by calling the Funds toll-free at 1-800-279-0279, (ii) on the Funds’ website at www.davisfunds.com, and (iii) on the SEC’s website at www.sec.gov.

 

In addition, the Funds are required to file Form N-PX, with their complete proxy voting record for the 12 months ended June 30th, no later than August 31st of each year.  The Funds’ Form N-PX filing is available (i) without charge, upon request, by calling the Funds toll-free at 1-800-279-0279, (ii) on the Funds’ website at www.davisfunds.com, and (iii) on the SEC’s website at www.sec.gov.

 

**Form N–Q**

 

The Funds file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q.  The Funds’ Form N-Q is available without charge upon request by calling 1-800-279-0279 or on the Funds’ website at www.davisfunds.com or on the SEC’s website at www.sec.gov.  The Funds’ Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and that information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

 

 

104

 

 

 

**DAVIS SERIES, INC.**

2949 East Elvira Road, Suite 101

Tucson, Arizona 85706

**DIRECTORS**

 

For the purposes of their service as directors to the Davis Funds, the business address for each of the directors is 2949 E. Elvira Road, Suite 101, Tucson, AZ 85706. Each Director serves until their retirement, resignation, death or removal. Subject to exceptions and exemptions which may be granted by the Independent Directors, effective January 1, 2006, Directors must retire at the close of business on the last day of the calendar year in which the Director attains age seventy-four (74).

 

**Name and Age**

**Position(s) Held With  Fund**

**Term of Office and Length  of Time Served**

**Principal Occupation(s)  During Past Five Years**

**Number of Portfolios in  Fund Complex Overseen by Director**

**Other Directorships Held  by Director**

 

***Independent Directors***

 

 

 

 

 

 

**Wesley E.**

**Bass, Jr.**

(born 8/21/31)

Director

director since 1990

(retired 12/31/05)

President, Bass & Associates (financial consulting); formerly First Deputy City Treasurer, City of Chicago; and Executive Vice President, Chicago Title and Trust

Company (bank and trust).

12

none

 

 

 

 

 

 

**Marc P. Blum**

(born 9/9/42)

Director

director since 1986

Chief Executive Officer, World Total Return Fund, LLLP; Of Counsel to Gordon, Feinblatt, Rothman, Hoffberger and Hollander, LLC (law firm).

12

Director, Legg Mason Trust (asset management company) and Rodney Trust Company (Delaware).

 

 

 

 

 

 

**Thomas S. Gayner**

(born 12/16/61)

Director

director since 2004

Executive Vice President and Chief Investment Officer, Markel Corporation (insurance company).

12

none

 

 

 

 

 

 

 

 

 

**Jerry D. Geist**

(born 5/23/34)

Director

director since 1986

Chairman, Santa Fe Center Enterprises (energy project development); Retired Chairman and President, Public Service Company of New Mexico.

12

 

Director, CH2M-Hill, Inc. (engineering); Chairman, Santa Fe Center Enterprizes, Investment Committee for Microgeneration Technology Fund, UTECH Funds.

 

 

 

 

 

 

 

 

105

 

 

 

**DAVIS SERIES, INC.**

2949 East Elvira Road, Suite 101

Tucson, Arizona 85706

**DIRECTORS - Continued**

 

**Name and Age**

**Position(s) Held With  Fund**

**Term of Office and Length  of Time Served**

**Principal Occupation(s)  During Past Five Years**

**Number of Portfolios in  Fund Complex Overseen by Director**

**Other Directorships Held  by Director**

 

***Independent Directors - Continued***

 

 

 

 

 

 

**D. James Guzy**

(born 3/7/36)

Director

director since 1982

Chairman, PLX Technology, Inc. (semi-conductor manufacturer).

12

Director, Intel Corp. (semi-conductor manufacturer), Cirrus Logic Corp. (semi-conductor manufacturer), Alliance Technology Fund (a mutual fund), Micro Component Technology, Inc. (micro-circuit handling and testing equipment manufacturer), LogicVision, Inc. (semi-conductor software company), and Tessera Technologies, Inc. (semi-conductor packaging company.

 

 

 

 

 

 

**G. Bernard Hamilton**

(born 3/18/37)

Director

director since 1978

Managing General Partner, Avanti Partners, L.P. (investment partnership).

12

none 

 

 

 

 

 

 

**Samuel H. Iapalucci**

(born 07/19/52)

Director

director since 2006

Executive Vice President and Chief Financial Officer, CH2M-Hill, Inc., (engineering).

12

none 

 

 

 

 

 

 

**Robert P. Morgenthau**

(born 3/22/57)

Director

director since 2002

Chairman, Northroad Capital Management, LLC (an investment management firm) since June 2002; President of Private Advisory Services of Bank of America (an investment management firm) from 2001 until 2002; prior to that a managing director and global head of marketing and distribution for Lazard Asset Management (an investment management firm) for ten years.

12

none 

 

 

 

 

 

 

**Theodore B. Smith, Jr.**

(born 12/23/32)

Director

director since 1994

Chairman, John Hassall, Inc. (fastener manufacturing); Chairman, Cantrock Realty and Mayor, Incorporated Village of Mill Neck, NY.

12

none

 

 

106

 

 

 

**DAVIS SERIES, INC.**

2949 East Elvira Road, Suite 101

Tucson, Arizona 85706

**DIRECTORS - Continued**

 

**Name and Age**

**Position(s) Held With  Fund**

**Term of Office and Length  of Time Served**

**Principal Occupation(s)  During Past Five Years**

**Number of Portfolios in  Fund Complex Overseen by Director**

**Other Directorships Held  by Director**

 

***Independent Directors - Continued***

 

 

 

 

 

 

**Christian R. Sonne**

(born 5/6/36)

Director

director since 1990

General Partner, Tuxedo Park Associates (land holding and development firm); President and Chief Executive Officer, Mulford Securities Corporation (private investment fund) until 1990; formerly Vice President of Goldman Sachs & Co. (investment banking); Chairman, Board of Trustees, American Scandinavian Foundation.

12

none

 

 

 

 

 

 

**Marsha Williams**

(born 3/28/51)

Director

director since 1999

Executive Vice President and Chief Financial Officer of Equity Office Properties Trust (a real estate investment trust); Former Chief Administrative Officer of Crate & Barrel (home furnishings retailer); former Vice President and Treasurer, Amoco Corporation (oil & gas company).

15

Director of the Selected Funds (consisting of three portfolios) since 1996; Director, Modine Manufacturing, Inc. (heat transfer technology); Director, Chicago Bridge & Iron Company, N.V. (industrial construction and engineering).

 

***Inside Directors****

 

 

 

 

 

 

**Jeremy H. Biggs**

(born 8/16/35)

Director/

Chairman

director since 1994

Vice Chairman, Member of the Investment Policy Committee and Member of the International Investment Committee, all for Fiduciary Trust Company International (money management firm);  Consultant to Davis Selected Advisers, L.P. 

12

none

 

 

 

 

 

 

 

 

107

 

 

 

**DAVIS SERIES, INC.**

2949 East Elvira Road, Suite 101

Tucson, Arizona 85706

**DIRECTORS - Continued**

 

**Name and Age**

**Position(s) Held With  Fund**

**Term of Office and Length  of Time Served**

**Principal Occupation(s)  During Past Five Years**

**Number of Portfolios in  Fund Complex Overseen by Director**

**Other Directorships Held  by Director**

 

***Inside Directors* - Continued***

 

 

 

 

 

 

**Andrew A. Davis**

(born 6/25/63)

Director

director since 1997

President or Vice President of each Davis Fund and Selected Fund; President, Davis Selected Advisers, L.P., and also serves as an executive officer in certain companies affiliated with the Adviser.

15

Director of the Selected Funds (consisting of three portfolios) since 1998.

 

 

 

 

 

 

**Christopher C. Davis**

(born 7/13/65)

Director

director since 1997

Chief Executive Officer, President or Vice President of each Davis Fund, Selected Fund, and the Clipper Fund; Chairman and Chief Executive Officer, Davis Selected Advisers, L.P., and also serves as an executive officer in certain companies affiliated with the Adviser, including sole member of the Adviser’s general partner, Davis Investments, LLC; Employee of Shelby Cullom Davis & Co. (registered broker/dealer).

15

Director of the Selected Funds (consisting of three portfolios) since 1998; Director, Washington Post Co. (newspaper publisher).

****

*

Jeremy H. Biggs, Andrew A. Davis and Christopher C. Davis own partnership units (directly, indirectly or both) of the Adviser and are considered to be “interested persons” of the Funds as defined in the Investment Company Act of 1940. Andrew A. Davis and Christopher C. Davis are brothers.

 

 

108

 

 

 

**DAVIS SERIES, INC.**

2949 East Elvira Road, Tucson, Arizona 85706

 

 

**Directors**

**Officers**

 

Jeremy H. Biggs

Jeremy H. Biggs

 

Marc P. Blum

*Chairman*

 

Andrew A. Davis

Andrew A. Davis

 

Christopher C. Davis

*President – Davis Appreciation & Income*

 

Thomas S. Gayner

*Fund, Davis Real Estate Fund &*

 

Jerry D. Geist

*Vice President – Davis Opportunity Fund, Davis*

 

D. James Guzy

*Government Bond Fund, Davis Government*

 

G. Bernard Hamilton

*Money Market Fund, & Davis Financial Fund*

 

Samuel H. Iapalucci

Christopher C. Davis

 

Robert P. Morgenthau

*President – Davis Opportunity Fund,*

 

Theodore B. Smith, Jr.

*Davis Financial Fund & Vice President - Davis*

 

Christian R. Sonne

*Government Bond Fund, Davis Government*

 

Marsha Williams

*Money Market Fund, Davis Appreciation &*

 

 

*Income Fund, & Davis Real Estate Fund*

 

 

Creston A. King

 

 

*President – Davis Government Money Market*

**Investment Adviser**

*Fund & Davis Government Bond Fund*

Davis Selected Advisers, L.P. (Doing business as “Davis Advisors”)

Kenneth C. Eich

2949 East Elvira Road, Suite 101

*Executive Vice President & Principal*

Tucson, Arizona 85706

*Executive Officer*

(800) 279-0279

Sharra L. Reed

 

*Vice President & Chief Compliance Officer*

**Distributor**

Douglas A. Haines

Davis Distributors, LLC

*Vice President & Principal Accounting Officer*

2949 East Elvira Road, Suite 101

Thomas D. Tays

Tucson, Arizona 85706

*Vice President & Secretary*

 

 

**Transfer Agent**

 

Boston Financial Data Services, Inc

 

c/o The Davis Funds

 

P.O. Box 8406

 

Boston, Massachusetts 02266-8406

 

 

 

**Custodian**

 

State Street Bank and Trust Company

 

One Lincoln Street

 

Boston, Massachusetts 02111

 

 

**Counsel**

 

Seyfarth Shaw LLC

 

55 East Monroe Street, Suite 4200

 

Chicago, Illinois 60603-5803

 

 

 

**Independent Registered Public Accounting Firm**

 

KPMG LLP

 

707 Seventeenth Street, Suite 2700

 

Denver, Colorado 80202

 

 

 

***For more information about Davis Series, Inc. including management fee, charges and expenses, see the current prospectus, which must precede or accompany this report.  The Funds’ Statement of Additional Information contains additional information about the Funds’ Directors and is available without charge upon request by calling 1-800-279-0279 or on the Funds’ website  at www.davisfunds.com.  Quarterly Fact sheets are available on the Funds’ website  at www.davisfunds.com.***

 

 

109

 

 

 

**ITEM 2.  CODE OF ETHICS**

 

The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.

 

A copy of the code of ethics is filed as an exhibit to this form N-CSR.

 

**ITEM 3.  AUDIT COMMITTEE FINANCIAL EXPERT**

 

The registrant’s board of directors has determined that independent trustee Marsha Williams qualifies as the “audit committee financial expert”, as defined in Item 3 of form N-CSR.

 

**ITEM 4.  PRINCIPAL ACCOUNTANT FEES AND SERVICES**

 

 

(a)

Audit Fees.  The aggregate Audit Fees billed by KPMP LLP (“KPMG”) for professional    services rendered for the audits of the audits of the financial statements, or services that are normally provided in connection with statutory and regulatory filings or engagements for the fiscal year ends December 31, 2005 and December 31, 2004 were $103,500 and $99,895, respectively.

 

 

(b)

Audit-Related Fees.  The aggregate Audit-Related Fees billed by KPMG for services rendered for assurance and related services that are not reasonably related to the performance of the audit or review of the fund financial statements, but not reported as Audit Fees fore fiscal year ends December 31, 2005 and December 31, 2004 were $0 and $0, respectively.

 

 

(c)

Tax Fees.  The aggregate Tax Fees billed by KPMG for professional services rendered for tax compliance, tax advise and tax planning for the fiscal year ends December 31, 2005 and December 31, 2004 were $48,280 and $14,505, respectively. 

 

Fees included in the Tax Fee category comprise all services performed by professional staff in the independent accountant’s tax division except those services related to the audit.  These services include preparation of tax returns, tax advice related to mergers and a review of the fund income and capital gain distributions.

 

 

(d)

All Other Fees.  The aggregate Other Fees billed by KPMG for all other non-audit services rendered to the fund for the fiscal year ends December 31, 2005 and December 31, 2004 were $0 and $0, respectively.

 

(e)(1)  Audit Committee Pre-Approval Policies and Procedures.

 

The fund Audit Committee must pre-approve all audit and non-audit services provided by the independent accountant relating to the operations or financial reporting of the funds.  Prior to the commencement of any audit or non-audit services to a fund, the Audit Committee reviews the services to determine whether they are appropriate and permissible under applicable law.

 

The fund Audit Committee has adopted a policy whereby audit and non-audit services performed by the fund independent accountant require pre-approval in advance at regularly scheduled Audit Committee meetings.  If such a service is required between regularly scheduled Audit Committee meetings, pre-approval may be authorized by the Audit Committee Chairperson with ratification at the next scheduled audit committee meeting.

 

110

 

 

 

 

(2)

No services included in (b) – (d) above were approved pursuant to paragraph (c)(7)(i)(C) of 

Rule 2-01 of Regulation S-X.

 

 

(f)  

Not applicable

 

 

(g)

The Funds’ independent accountant did not provide any services to the investment advisor or any affiliate for the fiscal years ended December 31, 2005 and December 31, 2004.  The fund has not paid any fees for non-audit not previously disclosed in items 4 (b) – (d).

 

 

(h)

The registrant’s audit committee of the board of trustees has considered whether the provision of non-audit services that were rendered to the registrant’s investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.  No such services were rendered.

 

**ITEM 5.  AUDIT COMMITTEE OF LISTED REGISTRANTS**

 

Not Applicable

 

**ITEM 6.  SCHEDULE OF INVESTMENTS**

 

Not Applicable.  The complete Schedule of Investments is included in Item 1 of this for N-CSR

 

**ITEM 7.  DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES**

 

Not Applicable****

 

**ITEM 8.  PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES**

 

Not Applicable

 

**ITEM 9.  PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANIES AND AFFILIATED PURCHASERS**

 

Not Applicable

 

**ITEM 10.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

There have been no changes to the procedure by which shareholders may recommend nominees to the registrant’s Board of Trustees.

 

**ITEM 11.  CONTROLS AND PROCUDURES**

 

 

(a)

The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-2 (c) under the Investment Company Act of 1940, as amended) are effective as of a date within 90 days of the filing date of this report.

 

111

 

 

 

 

(b)

There have been no significant changes in the registrant’s internal controls or in other factors that could significantly affect these controls.

 

**ITEM 12.  EXHIBITS**

 

(a)(1)  The registrant’s code of ethics pursuant to Item 2 of Form N-CSR is filed as an exhibit to this form N-CSR.

 

(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are attached.

 

(a)(3)  Not applicable

 

(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are attached.

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

DAVIS SERIES, INC.

 

By

/s/ Kenneth C. Eich

 
 

Kenneth C. Eich

 
 

Principal Executive Officer

 

Date:  March 8, 2006

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By

/s/ Kenneth C. Eich

 
 

Kenneth C. Eich

 
 

Principal Executive Officer

 

Date:  March 8, 2006

 

By

/s/ Douglas A. Haines

 
 

Douglas A. Haines

 
 

Principal Financial Officer

 

Date:  March 8, 2006

 

 

112